Banks reject mortgage borrowers in 40s
Home buyers in their 40s are being turned down for mortgages under tough new banking rules
Mortgage borrowers in their 40s are starting to be refused by UK mortgage lenders that extend past the traditional retirement age. The warning from British banks comes as the strict new banking rules introduced last April begins to bite.
With the new rules in place, borrowers have to prove that their incomes are capable of making the repayments. This means that lenders are fearful of offering 25-year mortgages to borrowers in their mid-40s in case the regulator fines them for mis-selling or lax lending standards. Gone are the days when individuals could get mortgages even if their incomes were not checked, proving they could repay the loan.
Today, the average age for first-time property buyers is 36, which means they put off acquiring a property until they have saved enough for a deposit. And with the huge rise in UK prices, borrowers are now looking at stretching their repayment terms to 30-35 years. By the time they are ready to purchase their first property, say at 40 years old, lenders can deny their application for loans because of the stricter rules (they would be 70 before they could repay a 30-year term deal). With this in place, many people cannot get onto the property ladder until later in life, leading to concerns that older borrowers are being locked out of the housing market.
Is there a solution?
One thing a borrower in his 40s can do is reduce the term of the mortgage, but this means higher monthly payments. If you can afford it, this will not be an issue. If, on the other hand, affordability becomes a problem, you can choose to have your mortgage extend into retirement, but you will have to prove that your income can sustain the repayments.
Some lenders may be more lenient with borrowers who can prove that they will postpone their retirement age, say to 70 years old, taking into consideration the nature of the borrower's job. For example, it may be less difficult for a 43-year old university professor wanting to acquire a 25-year term mortgage to demonstrate that he should still hold his job at 68, than it might be for (for example) a 43-year old construction worker wanting a 30-year term mortgage.
The combination of very high property values, stricter mortgage lending criteria and potentially rising interest rates could make the perfect storm for borrowers in their 40s and 50s looking for a new mortgage
About Carlton Crabbe
Carlton Crabbe was previously an Ultra High Net Worth and High Net Worth wealth manager at AES International. His blog posts remain relevant for expatriate investors.