Mortgages For Retirees

The UK population is ageing rapidly, with over 11 million people aged 65 years and over in England and Wales, making up 18.6% of the total population. 

But even if you are retired, you might need a mortgage for various reasons, such as buying a new property or remortgaging.

The trouble is, as a retiree trying to get a mortgage, your options become much less, and terms become stricter. Anyone over 50 is unlikely to get a mortgage term of 25-30 years.

But that certainly doesn’t mean you can’t get one! In this guide, we will demystify mortgages for retirees and answer any questions you might have on the topic.

Let’s begin.

How Can A Retiree Qualify For A Mortgage?

Getting a mortgage can be a bit complicated for a retiree, but it’s certainly not impossible.

While it’s true that lenders can be a bit more selective and cautious in offering you a mortgage when you’re retired, some lenders can provide favourable terms.

Most lenders will require you to pay back the mortgage by 70 years of age, but some can extend that limit to 80 or even 85. We recommend working with an experienced mortgage broker to get the best deals.

So, long story short, you can get a mortgage as a retiree, but the repayment term will be shorter depending on your age, and interest rates will be higher usually as more specialised lenders will need to be approached. You might even be asked to put down a larger deposit amount.

Why Don’t Lenders Readily Provide Mortgages To Retirees?

The first reason is that it becomes tougher to prove your income potentially once you’re retired. While you’re salaried, you can share bank statements or salary slips to show your monthly income. 

But once you’re retired and start living on your pension, it can be hard to prove a steady monthly income as pensions often involve lump sum. Of course this won’t apply to pensions paid monthly as often either a p60 or monthly wage slips can be provided.  

Another reason it might be hard to get a mortgage as a retiree is that as you age, your longevity decreases in the eyes of the lenders. 

So, they might be hesitant to offer you a longer term for a mortgage. Life expectancy and health play a significant role in deciding whether your mortgage is approved when considering this factor.

However, these problems can be circumvented. If you can show that you have a steady source of income in the form of a private pension (or a combination of state and private pension), then your chances of approval increase.

You can also show any other source of income you might have, such as investments and other properties. 

The key is to demonstrate that even if you’re retired, the monthly repayments will remain affordable. 

To further ensure this, you can share details of your monthly expenditures, savings, healthcare costs, etc. 

You might also be able to boost your chances with a fitness certificate from your healthcare provider showing that even if you’re retired, your health is fine. This is quite a requirment of a lender. 

Finally, a bit of a suggestion: Don’t borrow the maximum amount you’re eligible for. Keep it modest to pay it back without too much financial pressure.

Types of Mortgages For Retirees

1. Repayment Mortgages

Getting a repayment mortgage is the most common type of mortgage and offers the maximum number of options.

Here, you pay back a bit of the capital amount along with the interest every month. This means that with each repayment, your total loan amount decreases.

Repayment mortgages are a good option for retirees because at the end of the term, your loan is paid off and you own your home entirely. 

What’s more, if you have a larger equity stake in your property, and are borrowing less than 60% of the property value, then you’ll most likely get the best interest rates available.

The only disadvantage here is that since you’re repaying both capital and interest every month, the monthly repayment sum will be higher.

2. Interest-Only Mortgages

Here, you only pay the interest every month, and the capital amount can be paid back at the end of the term. 

This is usually done by selling off the property. Interest-only mortgages have the advantage of lower monthly repayments.

3. Equity-release Mortgages

Retirement interest-only (RIO) mortgages and lifetime mortgages fall under this category. Equity release means that you use up some of the value that’s tied in your property to get available funds. 

Lifetime mortgages are the most popular among these types of mortgages and are available to people over 55 years of age. They enable you to borrow money against your home while retaining ownership for as long as you live. 

Money received from a lifetime mortgage is usually non-taxable and given as a lump sum or in monthly instalments, whichever you prefer. The loan amount or interest doesn’t need to be repaid until the borrower’s death, or till they enter long-term care.

So, while you don’t have to make monthly repayments with a lifetime mortgage, the interest amount can compound easily. The final amount needs to be paid by selling the property once the borrower has passed away.

4. Buy-to-let Mortgages

If you’re looking to buy a property for rental income, then buy-to-let is the way to go. 

This type of mortgage is easily obtained for retirees as it depends more on the rental income you can get than on your pension income.

For all these types of mortgages, it’s best to work with a broker who can give you the best deals.

Frequently Asked Questions (FAQs)

1. Is Home Reversion A Form of Equity Release?

Yes, it is. In this scheme, you can sell all or part of your home for a lump sum, a regular income, or both. You can also stay as a rent-free tenant in your home till it’s sold and the loan paid off. 

In a home reversion scheme, you’ll usually get around 20% to 60% of the property’s market price as the loan amount. Your age and health also play an important factor in this arrangement.

2. Is Taking A Mortgage As A Retired Person A Good Idea?

As long as you can afford to repay it, a mortgage may be a good idea for a retired person. With careful planning, it can be the right solution for you.

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.