Lending criteria for mortgages in later life

With people living and working longer, the demand for later life lending has increased, and with it lender flexibility. It is now more feasible, and easier, for clients to borrow well beyond age 55.

At Family Building Society, we support intermediaries with a range of later life mortgage products to suit clients in various circumstances. In this article, we discuss the lending criteria for mortgages in later life and investigate the product options available to individuals looking to borrow in retirement. 

The mean age of someone buying their first home in the UK is 34 according to the UK Housing Survey. Assisting first time buyers with their mortgage application and understanding the criteria is no-doubt second nature to you.

The term ‘later life lending’ refers to borrowing (often through mortgages) for those 55 or older. Borrowing in later life isn’t always straightforward.  Clients can be going into retirement and income streams can therefore be more complicated – looking at earned income as well as other income streams.

There are specialist later life mortgage products available to those clients. Equity release has historically been the go-to product for a borrower in retirement. Retirement Interest-Only mortgages can also be an option for those looking for a mortgage with no set end date. However, a standard repayment or Interest-Only mortgage with monthly interest payments can be a better option and many lenders can now offer mortgages with terms that stretch to much older ages.

At Family Building Society we offer:

We can lend up to age 95 at end of mortgage term on a repayment basis or up to age 89 at application for interest-only mortgages. Using a standard mortgage can be a much more cost-effective way of borrowing in later life and can be considered before a client is ready to go down the path of equity release.

Available for older clients investing in rental property. Mortgage lenders look at their rental income to conduct an affordability assessment. We can lend up to age 89 at mortgage application for this type of product. 

Our RIO mortgages do not have a term end date. This gives your clients the flexibility to enjoy their home until a specific life event, such as moving into long-term care or passing away. This triggers the repayment of their mortgage.

As they are interest-only, the benefit for your client is smaller monthly mortgage payments than a repayment mortgage, which can be a hugely important for later life borrowers. The monthly payments can be easier to cover on a pension income, and they have peace of mind that the mortgage will be paid off when their house is sold.

At Family Building Society, we can help you work closely with new clients and existing customers at all stages of life and have helped many borrowers to remain in their home by allowing them to have a mortgage with us well into their retirement.

As an intermediary, you often help people with challenging situations get the best mortgage to suit their needs. A mortgage in later life is no different. 

If you can prove your clients affordability, using pension income, rental income, investment income or any other streams, you shouldn’t have any difficulties in finding the right solution for them no matter what their age.

Below is an outline of the common mortgage lending criteria:

Income and affordability

Just as they would with other types of loan, the lender must be confident in your client’s ability to meet mortgage terms. They must be able to make monthly repayments and have acceptable repayment plans in place.

Affordability calculators are a good way to assess whether your client can meet the terms of their mortgage. They’ll also give an idea of what the monthly mortgage payments will be. The lender may also run a ‘stress test’ against your client to ensure the payments are still affordable if rates were to increase.

Every lender will have a maximum age to which they will lend to. The higher the acceptable age, the longer a mortgage term can extend to. This can make a big difference in making sure the monthly repayments are affordable. 

For example, at Family Building Society we lend up to 95 years old. We could offer a 70-year-old client a mortgage term of up to 25 years on a repayment basis. With another mortgage lender, they may only be able to get a mortgage term of 10 years, which would have big impact when assessing affordability.

For specialist later life mortgage products, lenders may have a minimum age requirement. Retirement Interest-Only products are generally available to anyone aged 55 and above, but this varies from lender to lender.

The other thing to consider is how close your client is to retirement age. If the mortgage will extend past retirement age, the lender may require proof of retirement income upon mortgage application. 

Some lenders will only accept earned income or retirement income, but not a combination of both. This would have an impact on how long the mortgage term could be extended to. 

At Family Building Society, our manual underwriting approach allows us to consider both earned income to retirement and passive income beyond that, which means we can be a more flexible in our lending solutions.  

Credit checks are a standard part of the mortgage application process. Lenders want to ensure that your client will be able to meet the monthly repayments. This involves the usual checks and can affect the types of mortgage and interest rates lenders offer.

Check through recent bank statements to ensure there is nothing in there that can hinder their ability to borrow money. Your job is to make sure your client pays their bills on time, there are no hidden debts or bankruptcy etc. This is a key indicator that your client will be able to keep up with mortgage payments and may impact the maximum loan or mortgage offer.

Mainstream mortgage lenders will use standardised credit scoring and for some, this is the scariest part of a mortgage application process. Some worry that a poor credit score means automatic rejection — but that is not always the case. We use a much more tailored credit check, assessing each client on an individual level before concluding on the mortgage application. 

Find out if we can help your client with our criteria checking tool.