Banks reject borrowers who would still be paying off mortgages in retirement. Our guide to beating the over 40’s trap…..
This is an important fact that can be easily overlooked but is an extremely vital part in planning for your future.
Previously, it was just a normal assumption that you could walk into a bank and they would automatically approve a 30 yr mortgage, however in recent times, the bank have had to abide by new rules regarding “responsible lending” which was brought in by ASIC, after the GFC. Even though there are also policies regarding anti-discrimination – one being age, there is definitely a fixed cut off age of 70 – and the banks won’t budge!
Why are the banks worried? Prior to the financial crisis lenders were relaxed about lending to older people. Often incomes weren’t check and buyers did not need to prove they could repay their loan. Lenders now need to prove that you have a regular income to make repayments. If a mortgage extends into retirement, it might mean you are on a lower income and no be able to keep up your repayments.
Why is it getting worse? High house prices and couples coming together later in life, means that it is taking a lot longer to save for that elusive deposit. The average first home buyer now is 36 and on top of this, borrowers are looking for a minimum of 30 year terms to keep their repayments lower due to the fact that they are also starting families later in life and may need to go down to one income.
What are the other issues? Many people reach retirement age are determined to take their Superannuation fund in a lump sum, instead of as a regular pension type of income, therefore banks no longer can be sure that their customers will have enough money to pay off their home loans.
So what do we do? The obvious solution is to reduce your mortgage term to meet the banks policy – but it’s a vicious circle – reducing the term means higher repayments, which make affordability a problem. Certain Lenders don’t have an official maximum and will look at individual circumstances, that is where your Mortgage Broker will step in and provide advice and assistance.
What else can you do? If you want your mortgage to extend into your retirement, you are going to need to prove you’ve got the income to pay for it. Unfortunately, Lenders cannot accept you just saying that you are going to put off retirement. Lenders are slowing realizing that most people are not going to retire dead on their retirement age and many will consider your line of work and whether it is plausible that you could still be continuing at the age you predict. This will depend on how physical the job is and for example, if you were self-employed, could staff take over the everyday operations, so you can still continue to earn an income after retirement. Banks will also consider what your “exit” strategy is – unfortunately, selling the home is not something that they will accept as your exit strategy.
This is not the end of the road. There are still other options to own property if you do hit a brick wall. I am happy to discuss how you can still own a home of your own, if you feel that you cannot meet the terms of the Lenders due to age barriers.
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