Mortgages For Pensioners

Traditionally, it’s a known fact that the nearer you get to retirement, the harder your chances of getting a mortgage.

However, there are a lot of people who’ve retired and taken out mortgages afterward. In the UK, around 5% of homeowners over 65 have bought their properties through mortgages. 

Now, lenders do have their age limits for giving out mortgage loans, but there is no legal age limit after which you can’t apply for a mortgage. So pensioners can take out mortgages too, provided they can prove that they’ll be able to pay the loan off in time and meet the lenders eligibility criteria.

Today, we are going to discuss all about mortgages for pensioners and how to get one.

Why Would A Pensioner Need A Mortgage Anyway?

There can be multiple reasons why someone would need a mortgage after retirement. You might need to remortgage at the end of the term for an interest-only mortgage. Or, you might be looking to relocate to a new property that suits your retired lifestyle better. 

Another reason why you might need a mortgage after retirement is if you want a rental property for additional income. In this case, you’ll need to look for buy-to-let mortgages. You might even need a mortgage for home repairs and renovations.

As a retired borrower, you’ll need to face multiple challenges and limited choices as the number of lenders willing to offer a mortgage will be lesser than usual. It might help to talk with a mortgage professional experienced in handling pensioner mortgages.

As already mentioned above, there’s no legal age limit for mortgages in the UK, but anyone over 55 is considered an older borrower. If you’re a pensioner over 70, options will be fewer but still available with proper guidance. 

Some lenders will try to push you towards mortgages with shorter repayment periods. But these will usually have a larger monthly repayment requirement which might not suit you. 

Maximum Amount You Can Borrow As A Pensioner

When you’re a pensioner, you can show that you have a fixed income in the form of your pension. However, since you no longer have a job, lenders will usually offer you amounts in lower-income multiples potentially. Most lenders will use a 4-4.5x multiplier, but some can go lower than this.

This means you might need to settle for a smaller loan amount unless you find the right lender. Even then, you’ll most likely be offered shorter repayment terms. Apart from age, here are a few other factors that can affect how much you can borrow as a pensioner:

• Your existing assets and their value
• Your pension income, savings, and retirement benefits 
• Existing debts and dependants 
• Your monthly spending requirements
• The current state of your health

Bottom line: getting a mortgage as a pensioner can be tough, but with the right guidance you can get a good mortgage that suits your needs.

Eligibility Criteria For Pensioner Mortgages

While age is one of the important factors that lenders consider when assessing mortgage eligibility, it’s not the only one. People in the same age bracket can have different financial requirements and positions, and lenders will assess all of these circumstances before approval.

Here are some of the most important criteria that lenders emphasise:

1. Source of Income

Even if you’re retired, you might take on a job to add to your pension income. In such cases, lenders will want to understand whether this is merely a short-term job or if you plan to continue it.

In case you’re over 70 and unlikely to hold a job for too much longer in all honesty, you’ll need to specify how you plan to repay the loan with your pension income.

2. Income Type

Also important is the type of pension that you receive. Lenders have preferences regarding whether they want to provide loans to applicants with a defined benefit pension, an annuity, or even a drawdown arrangement. 

Some lenders might even consider your state pension and government-sponsored benefits. At the end of the day it all depends on the lender, so make sure you choose one that meets your needs and an experienced mortgage broker will help you with this.

3. Payment Frequency

The frequency of your pension payments can also play a part in whether your application is approved or not. Usually, the more frequent your pension payments the better. 

4. Deposit Amount

As with any other mortgage, pensioner mortgages also depend on the deposit you’re able to put in. A larger deposit will help you get better rates and terms. However, for senior citizens, the term length might be a shorter one based on life expectancy estimates.

5. Type of Property

Finally, the type of property you’re looking to buy also makes a difference. Especially if the property is classified as non-standard or has special features. Along similar lines, if you’re looking to buy a flat, then leasehold mortgages can also come with their requirements.

Lenders Who Offer Mortgages For Pensioners

1. Aldermore

Aldermore offers loans to elderly applicants with an occupational pension, but the state pension can’t be your sole source of income.

2. Earl Shilton Building Society

Offers loans if you have income from a private pension, but with a caveat. If more than 50% of your income is from a pension, there will be a maximum LTV of 70%.

3. Santander

Santander provides loans to retired persons with a private pension, provided the frequency is monthly or more frequent.

These are just some potential lenders as an example. 

Interest rates for these loans vary from lender to lender, but some of the factors that can influence interest rates are as follows:

• Equity amount
• LTV ratio
• Type of Property
• Affordability
• Lender’s minimum and maximum loan amounts

Types Of Mortgages For Pensioners

While retired people can opt for regular mortgages, some schemes are targeted towards pensioners. The following are some of these types of mortgages you can look at.

1. Retirement Interest Only Mortgages

This is a kind of mortgage that is designed specifically for senior citizens and pensioners. This type of mortgage is similar to a regular interest-only mortgage and can be availed by those living on a pension.

Here, you pay only the interest every month, but you need to pay the outstanding amount before your death. The primary factor with a retirement interest only mortgage is no set end term for the capital amount to be repaid. 

2. Remortgage

Retired people can also opt for a remortgage through their brokers. A big benefit of using a broker is that they can explore multiple options and select the most suitable one for you.

3. Joint Mortgage

In this mortgage type, the pensioner can get a joint mortgage with a younger, working applicant, which can boost the chances of getting approved. 

4. Lifetime Mortgage With Equity Release

This is one of the most popular mortgage options for pensioners. In case a majority of your total worth is tied up in your home or other properties, this can be a great option.

Such a mortgage can allow you to pay off an existing interest-only mortgage, or help you live a comfortable retired life with access to additional funds.

5. Home Reversion

This is a type of equity release mortgage. The difference between a home reversion and a lifetime mortgage is that in the former, you sell a part or the entirety of your home, to a home reversion provider in return for a bulk amount. In this case, you need to be over 60-65 and can live in the property till death.

Government Schemes and Alternatives

1. Downsizing

Downsizing with a smaller mortgage later in life is a good option for pensioners. This is usually easier to qualify for than moving to a larger property or remortgage. Downsizing also lets you access some of the equity you’ve built up in your home over time.

2. Older People’s Shared Ownership(OPSO)

OPSO is a government scheme where pensioners can buy a home by purchasing a share of the property. This share can be anywhere between 10% and 75%. Under this scheme, you need to pay rent if your purchased share is less than 75%. Once you’ve bought out 75% or more, then you no longer need to pay rent.

3. Home Ownership For People With Long-Term Disabilities (HOLD)

HOLD is another government alternative, similar to OPSO, and can help you out if no OPSO properties are available.

Frequently Asked Questions (FAQs)

1. What are the risks associated with taking out a mortgage for pensioners?

If you’re reliant on a fixed income, such as a pension income, then you need to assess your financial situation very carefully before committing to a mortgage. Make sure you take into account affordability, repayment terms, and any potential change in your lifestyle.

2. Can I use equity release to supplement my pension income instead of taking out a traditional mortgage?

Yes, equity release can be used to supplement your pension income without taking out a traditional mortgage. There are several equity release schemes, such as home reversion and lifetime mortgages, which allow you to use up equity vested in your property to boost retirement incomes.

Please bear in mind this article is for information purposes only and any advice surrounding equity release products will need to be given by an advisor who holds the relevant qualification with the FCA. 

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.