Too old to own a house? Over 40s now being rejected mortgages by banks

Borrowers over 40 are being forced to take out shorter loans that translate to steeper monthly repayments.

16:09 25 November 2014

Tough restrictions introduced in April have forced lenders to turn down mortgage applicants who are in their late thirties and forties because they are “too old.”

Fearful of breaking new rules, banks are attempting to avoid scenarios where borrowers will have to make repayments in retirement when incomes are lower.   

In a report released by Intermediary Mortgage Lenders Association (IMLA), borrowers in their 40s are warned that they falling victim to the new regime. It added that lenders do not have a guarantee that borrowers are able to pay when relying on a pension. ‘Fears of a future clampdown by regulators are preventing mortgage lenders from offering loans that stretch into people’s retirement,’ IMLA said.

A 45-year-old customer would be 70 before a standard 25-year- loan was paid off.

Meanwhile, those who are forced to take out shorter loans will face steeper monthly repayments.

On the other hand, the Financial Conduct Authority, which imposed the new rules, urged lenders not to adopt a “computer says no” attitude toward older borrowers.

Peter Williams of IMLA said: ‘Uncertain pension incomes make it difficult for lenders to assess mortgage affordability in later life, and this may become even harder when the new pension freedoms take effect next year.’

‘To avoid a situation where regulation brings about the extinction of mortgage terms that stretch into retirement, we need clarity and confirmation about where the boundaries of responsible lending truly lie.’

Andrew Montlake, a mortgage broker at Coreco Group, said: ‘The new pension freedoms mean it is difficult for lenders to know if someone will have a steady income in retirement or if they will have blown it on a Ferrari. There is no reason they cannot lend to someone in their 70s but they need assurances from the borrower that they will be working until the loan ends.’