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After recently receiving an inheritance, one man is considering purchasing his own home at the age 65.
He has been living in rented accommodation for many years but with the inheritance money he can afford to move into a place of his own.
The man inherited £85,000 and wants to use it towards a house worth £125,000.
Even with the deposit money ready, many pensioners may worry about whether they can get a mortgage after they retire as their earning power decreases.
The man earns £24,000 per year as he still works, however, he wonders if a bank would lend him the remaining balance.
The pensioner wrote into This is Money to gain advice from David Hollingworth, mortgage expert.
Mr Hollingworth explained that although some lenders set their own maximum age limits, there is no maximum age for applying for a mortgage.
Mortgages for pensioners do exist. The golden rule is simply the same as for any mortgage: people need to prove they can repay the loan, one way or another.
Many lenders enforced a maximum age of 70 or 75 at the end of the mortgage term, and those limits can still apply in some cases.
In the man’s case, aged 65, that would mean that the mortgage would need to be repaid over a 10 year term.
Borrowing a mortgage of £35,000 at a rate of four percent over 10 years would cost him £354.36 per month, whereas the same borrowing over 20 years would cost £212.09 per month.
As borrowers prove the can pay, lenders can increase the term.
Some lenders have pushed their maximum age out further to 80 or 85, whereas others are even more flexible and will decide on a case-by-case basis whether the loan can be approved.
Smaller lenders, like local building societies or private banks, can offer more flexible lending criteria and some have no upper age limit at all.
The interest rates may be higher, but a mortgage broker can help pensioners access a large pot of lenders and assess their options to find the best one for them.
What mortgages can a pensioner get?
Retirement interest-only mortgages – these work in a similar way to standard interest-only mortgages in that people only pay the interest each month. However, they only repay the outstanding balance once you die, go into long-term care or sell the house.
Lifetime mortgage – this is a type of equity release that lets one borrow a lump sum secured against their home, which they repay when they die, move into their long-term care or sell the house.
People pay interest on the amount they borrow, which will either compound over time to a lump sum they pay at the end or they may be able to pay it off as they go to avoid it increasing.
Older People’s Shared Ownership (OPSO) – this government-backed scheme isn’t a traditional mortgage, but it does offer a way for pensioners to buy a home.
It allows people to buy a portion of a property and pay rent on the remainder. They can only buy up to a 75 percent share, and once they reach this threshold, they won’t pay any more rent.
When looking at affordability, Mr Hollingworth explained that pension income will be acceptable, but it’s worth being aware that the lender will want to see some assurances of what their post-retirement income will look like.
He said: “Shop around to find the right fit for age and affordability, but as long as those requirements can be met and the property will fit the bill, there could be every chance that a mortgage could be used to facilitate the move to ownership.”
