What older property buyers need to know about mortgages

Anyone over the age of 50 will have noticed that mortgage options start to reduce at that life stage.

Yet, things are changing. As our population ages, demand for tailored mortgage products has increased too, and many lenders are taking advantage of this opportunity. This is good news for older buyers and property owners.

The first thing to note is that there is no legal upper age limit for mortgages—rather it’s the individual lenders that decide their lending policy.

The reason this market has been poorly served historically is mortgage lenders’ attitude to risk. A person approaching retirement (or someone who has already retired) is likely to have a lower income compared to a younger borrower.

Most borrowers have to pass affordability checks, and that can be harder for older borrowers.

In terms of wealth, it’s a very different picture.

According to the Office for National Statistics (ONS) on average individual wealth increases with age, peaking in the 60-64 age group (at a level nine times as high as the 30-34 age group), before falling in older age groups as people use their wealth to fund their retirement.

This concentration of wealth has given rise to schemes such as equity release—more on this later.

A mortgage advisor can help you navigate different lenders' stipulations about age limits and mortgage terms

The mortgage market is complex and constantly changing—products are launched and products are discontinued every day. As such, there isn’t a definitive answer to this question.

Typically the maximum age limit on mortgage products ranges between 70 and 95. Some lenders do not stipulate an upper age limit. As you age, the options reduce.

Other lenders are more interested in the mortgage term, and whether you will have paid off the mortgage by the end of the term. For example, Halifax wants borrowers to have repaid their mortgage by the age of 80 years old.

Always speak to a qualified independent mortgage advisor to find the best option for you.

If you are still working or have a retirement income (eg, from a private pension) this will probably be the best option.

As with all residential mortgages you will pay a combination of interest and capital repayment. You will also need to pass affordability checks.

This is for people who own their own homes and have considerable equity. It allows people to get a lump sum of cash (tax free) to fund, for example, their retirement.

There are two types of equity release: lifetime mortgage and home reversion.

These allow borrowers to obtain a tax-free cash lump sum and just make interest payments each month. When interest rates were low, this was a viable option—it’s less so now.

Withdrawing equity could affect your finances if you are on means-tested benefits

If you are in receipt of means-tested benefits these could be affected by pulling money out of your property. You might benefit from a tax-free lump sum of cash, but it could cost you dear.

Over the last 25 years, the mortgage market for older borrowers has changed beyond all recognition.

For many, this has opened up new opportunities. But others have regretted the decisions they have made. Equity release, in particular, can be a double-edged sword. I urge you to tread carefully.

Read more: Could this trick save you thousands on your mortgage?

Read more: Mortgage tips for first time buyers

Keep up with the top stories from Reader's Digest by subscribing to our weekly newsletter