Age is no longer a restriction for older people once it was as long as they are investing in a property. Britons in their 30s find it difficult to take out either a standard mortgage or buy-to-let mortgage because new rules aimed to curb risky lending are keeping them from borrowing money beyond their retirement age.
Prices of houses are soaring and people are trying to borrow a mortgage with terms 30 years or more. Therefore, financial experts have warned brokers against lending money to people who are over 30s or 40s.
When it comes to borrowing a mortgage from a direct lender, it becomes a bit more difficult as everybody sets their own age limits although there is no maximum age limit for applying for a mortgage. A lender will take into account your current age plus the age when your mortgage term ends to decide whether to approve or turn down. However, it does not mean that you cannot apply for a mortgage just because you are 60-years-old.
Age limit for buy-to-let mortgages
A few lenders provide buy-to-let mortgages to borrowers even though they are over 60. This is because they follow no upper age limit. Such lenders may reject your application if you are already in debt. Paying off a mortgage can be labyrinthine in your retirement age along with other debts. Since lending can be very risky, so they deny approving your application.
Such lenders are open to borrowers who are aged up to 70 at the time of application and borrowing money with the maximum term 35 years. It means you are likely to have such kind of mortgage deal even at the age of 90 provided you had applied for it before you turned 70.
Majority of lenders follow maximum age criteria
According to new rules set by Mortgage Market Review, lenders are to examine income and expenses while assessing affordability. Getting a mortgage over 60 is difficult because of retirement. Your income tends to plummet. However, a few lenders do not emphasise your income in case of buy-to-let mortgage as you will use your rental income to pay off instalments.
Lenders emphasise rental cover instead of the age when it comes to know whether or not you can afford a buy-to-let mortgage. Most of the lenders approve the application when monthly rent covers at least 125% of the mortgage instalment. However, borrowers are supposed to do enough research to find the right deal on basis of their own financial circumstances.
Financial Conduct Authority (FCA) suggests that lenders need to use their common sense as there are no explicit guidelines when they should make a critical examination on income. They cannot approve a mortgage without examining the income status of borrowers. They must aim at protecting the borrower.
However, such rules have made lenders overly cautious as the onus of interpreting repayment capacity along with projection of financial circumstance in future is on them and has raised doubts that they are conducting risky lending. This is why most of the borrowers are not ready to approve mortgages including buy-to-let during retirement.
Two biggest mortgage lenders of Britain, Halifax and NationWide have changed their rules for people over 60, no matter which type of mortgage borrowers are taking out. They determine the retirement point as a customer’s retirement age or state pension age, whichever is lower.
The number of buy-to-let products has risen by 21% since June last year. Many of them are available to property owners regardless of their age.
Buy-to-let mortgages for limited companies
Direct lenders are more flexible when it comes to approving such mortgage deals for limited companies. There is no upper age limit if you are taking out them using a limited company. However, not all direct lenders follow this criterion. You will have to do enough online research to find out a lender who approves such kind of deals. If age is keeping you from investing, you should take advice from an accountant, consider multiple options and switch to a limited company. it will also help you save money in tax.
Some lenders approve such mortgage deals after considering the age of all directors of the limited company. Your application will be turned down if no director in your company is under 70. Since FCA guidelines have changed and lenders are to work in favor of borrowers, this approach is followed to ensure that the company is under the aegis of veterans. Over the months, lenders have observed many transactions where the senior director of the company has appointed their children too to have the mortgage approved quickly. There are some cases of lenders who had approved the mortgage for borrowers who were under 75.