Older home owners struggle to switch to new mortgage

Older home owners are finding it increasingly difficult to remortgage or move house as more lenders cap the maximum age on new home loans.

Experts have accused lenders of "ageism" by imposing age limits, just as lending surges to younger borrowers at the bottom of the property ladder.

Over the past month, three building societies have slashed their age caps on mortgage lending: Leeds Building Society last week reduced its maximum age to 75 from 80; Skipton Building Society made an identical move in August; and Newcastle Building Society introduced a cap at age 75 whereas it previously had no limit. It followed West Bromwich Building Society reducing its maximum age to 70 from 80 in May.

Restricting lending to older borrowers is a recent development. As well as blocking the over-seventies, it also hits customers in their fifties who want to remortgage when a fixed-rate deal ends.

For instance, if a 55-year-old approaches a lender with an age restriction of 75, he or she will only be offered a 20-year term. This means annual repayments will be higher than on a 25-year term – although the debt will clear more quickly, cutting the overall cost.

Historically, high street lenders have issued loans without setting a maximum age for the borrower. But banks have slowly tightened their lending criteria since the 2008 financial crisis, and now typically refuse borrowing past age 70 or 75.

Building societies had provided a lifeline for those locked out – now even these community-focused firms are imposing strict caps.

Aaron Strutt of mortgage broker Trinity Financial said: "The building societies are being inundated with applications from older borrowers and are turning away a high number because they can pick and choose which customers they want."

Home owners with an interest-only mortgage have been hit particularly hard by the changes, he added. "Older borrowers who are coming to the end of an interest-only deal and cannot repay the capital are struggling to remortgage," Mr Strutt said. "Many are being forced to sell other assets – or their homes – in order to pay off the debt because they can't get a mortgage with a long enough term to make the repayments affordable."

There are four million people in Britain with an interest-only mortgage. Many are over the age of 50, and increasingly unable to secure a new loan on moving house, at the end of a fixed-rate period or if the term has expired and they are unable to clear the remaining debt.

Many firms have stopped issuing interest-only loans altogether, trapping borrowers with their existing lender. In some cases, the only option is to move to a repayment basis. If an older borrower is unable to extend the term of the mortgage past age 75, for example, monthly repayments will increase many times over, making the debt unaffordable.

Borrowers who hoped to repay their debts from investments or a pension lump sum have found low interest rates and poor investment returns have ruined their plans.

Many are being forced back into work, and cannot afford large repayment mortgages that only run for a short period. In addition, lenders are reluctant to rely on income from temporary or contract-based work as proof that a mortgage is affordable – despite this representing a growing portion of older workers' earnings.

Dominik Lipnicki, director of Your Mortgage Decisions, a broker, said: "Many people's pensions are not as big as they expected and are insufficient to clear a mortgage. Selling your property may be acceptable if you have experienced large house price rises in an area such as London, but for those in the North East, for example, it is not a good time to sell."

Many are turning to equity release policies instead. Here, home owners receive either a loan or cash lump sum. The interest is added to the loan each year and compounded. The debt is repaid when the house is sold, usually after death or moving into care. Mr Lipnicki said equity release should only be a "last resort".

Securing a mortgage later in life is a growing problem. Many have delayed buying a home due to house prices steaming ahead of wage growth. The average age of first-time buyers is currently 30, up from 25 in the early Seventies. This is expected to keep on rising – some predict it will reach 41 by 2025.

Andrew Montlake, a director at mortgage advisers Coreco, said lenders were demanding significantly more evidence from borrowers on how they will sustain their earnings to cover repayments.

Mr Montlake said: "For a lot of people, working until the age of 75 or 80 is realistic and the industry needs to address this. Lenders are becoming ageist – they need to adapt to the changes in the workplace and cater for the growing demand from older borrowers."

The good, the bad and the ugly

A small number of banks – and some building societies – have no maximum age limit on mortgages, research by Moneyfacts.co.uk for The Sunday Telegraph shows. These include HSBC, Bank of Ireland, Metro Bank, Bath Building Society, Monmouthshire Building Society, Vernon Building Society and the Post Office.

Mansfield Building Society will lend to age 85, while most of the high street lenders will offer loans to age 75. Lenders with a cap at age 75 include Halifax, Lloyds Bank, Nationwide Building Society, Santander, The Co-operative, Chelsea Building Society, and Leeds Building Society.

The lowest maximum age limit in the market is currently 65. There are a number of lenders that enforce this strict cut-off, including First Direct, Scottish Widows Bank, Teachers Building Society, Kensington, Clydesdale and Yorkshire Banks and Hinckley & Rugby Building Society.