According to a survey of Mortgage Brokers by the Nottingham Building Society, almost half said that they had experienced a rise in turned down Mortgage applications from clients in their 40’s needing Specialist Mortgage Advice in Nottingham.
A survey conducted by Nottingham Building Society had revealed that they had experienced a rise in unsuccessful Mortgage applications from clients above the age of 40. When asking customers whose applications were involved, customers had replied and said the factor it comes down to is age.
In order to understand this, we need to look back at the days before computerised credit scoring and increased regulation. If you applied for a Mortgage with your local branch the procedure would consist of being interviewed by the Branch Manager/Mortgage Advisor. The interviewer would then individually assess your personal details and then make the decision towards whether you get approved or not.
If you were successful then you’d be informed of how much you’re able to borrow which would be a multiple of your gross salary, E.g. if you were earning £20,000pa and the Lender’s income multiple was 3.5x then you would be allowed mortgage of £70,000.
When looking into this calculation, a factor it doesn’t take into account is age. Therefore, age didn’t matter meaning that didn’t restrict how much money you were able to borrow. Although it may seem fair but the bigger picture explains how the system was to an extent, unfair.
If we review the individual applications and the situation then we can see how this affects the applicants. Theoretically, if both of the applicants are due to retire at 65 and applicant one was granted a mortgage of only 15 years the mortgage payments would be higher than applicant two who was granted a mortgage up to 35 years.
To see how much of a difference this really is, let’s take a look at the above £70,000 mortgage and use that as an example and apply a 5% interest rate
-Applicant one mortgage payments on £70,000 over 15 years: £395pm approx.
-Applicant two mortgage payments on £70,000 over 35 years: £252pm approx.
It is prominent that one applicant’s payments are higher, despite the two applicants being identical earners. If interest rates were to rise then the chance of underlying risks such as an arrears situation suddenly appearing would amount to be greater for applicant two. This explains why mortgage calculators now review the maximum term of the mortgage in addition to your income and expenditure.
When the BBC got into contact with our Specialist Mortgage Advisors in Nottingham about the study, it was stated how it wasn’t so much that the older customers themselves were being turned down, it’s about they were expecting a different outcome in terms of what they were able to borrow. However, the irony included within this is that the Government keeps on telling us that we have to work until a later age before we qualify for a state pension whereas the Banks don’t seem to take this into account for numerous reasons.
Firstly, certain occupations including manual work mean it would not be feasible to work after a certain age. In addition to this, Regulators closely monitor Lenders when it comes to repossessions and arrears cases as it looks bad when these happen. The process of possession is very costly and attracts unwanted attention by which Lenders try to avoid it. It is because of reasons like this that they don’t want to offer a mortgage to individuals of more mature age and then be seen kicking them out because payments were unable to be paid.
Though it isn’t all bad news. Lenders may consider granting mortgages past the standardised retirement age with proof of affordability which would be a letter from a pension provider showing potential future incomes. The problem in relation to this is that the majority of the general public will be exposed to a reduction in income at retirement. This will mean evidence will be vital to prove you can upkeep payments. Although this rarely works unless you’re after a very small mortgage.
The default retirement age was discarded in 2011 therefore your employer can no longer make you retire making it so as Lenders will use the State Retirement age as a guideline as to which you should have your mortgage paid off by. Barring that, it has recently become more normal for Lenders to let you self-declare when you want to retire but this will comes with a plausibility check.
If you are thinking of going down this route then you must be prepared to answer questions on how you will be affording your Mortgage – Consumer protections and regulations are in place to protect consumers and encourage prudent lending. So, you will need to provide proof and demonstrate how you will upkeep payments.