Majority of Over-55s ‘Mortgage Prisoners’

Retired homeowners are being 'frozen out' of the mortgage market by strict affordability rules, according to new research.

New research published by broker Retirement Mortgage Service (RMS) found that 83% of over-55s who wanted a mortgage over the last year did not qualify for one of any kind.

Retirees are being frozen out of the mortgage market because they are being sabotaged by affordability rules that are not fit for purpose

said Steve Wilkie, executive chairman of Responsible Life

In the study, carried out over the past year, more than 30,000 retired borrowers contacted mortgage brokers to find out about what borrowing options were open to them.

Of these, 2,540 people applied to fully refinance their mortgage.

Amazingly, only 438 customers were able to move to a retirement interest-only mortgage or a lifetime mortgage; while a whopping 2,102 people were told they didn't qualify for any mortgage products at all.

RMS reported that this was in part due to affordability restrictions put in place by brokers.

Researchers pointed out that the survey was not statistically representative, but points to the likelihood that many older borrowers are mortgage prisoners as a result of affordability rules.

Mortgage Lenders

Mortgage lenders have rules governing the maximum ages that a borrower can be when their mortgage matures, designed to minimise the number of mortgages that end up in probate.

However, these rules mean that older people who want to remortgage may be forced to shorten the term of any new deal they take on. This pushes up the cost of monthly repayments and could cause them to fail lenders' affordability checks.

On top of that, some mortgages targeted at older people such as 'retirement interest only' mortgages can only be secured based on the income of one person, in the case of a joint application.

These affordability checks could mean that many older people planning to downsize may not be able to borrow as much as they hoped, and could be left looking for other means to find the moving cash, such as equity release.

Some experts say that greater flexibility is needed to allow older movers to make the most of their assets:

Retired borrowers should be allowed to show a greater variety of repayment strategies to unlock lending in later life. These should include plans to downsize, pension drawdown and reverting to lifetime mortgage products at the end of a mortgage term. Such flexibility would be in the spirit of other financial innovations that have sought to make it easier for the over-55s to navigate retirement, namely pensions freedoms.

said Mr Wilkie

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