With Ireland’s first-time buyers now often a decade older than in years gone by, securing a mortgage at an older age can pose its own challenges.
A 45-year-old may be in a much better financial position, but getting a bank to lend over a 30-year period may not be possible, given that the mortgage will be due to end when the person is well into retirement.
The ageing first-time buyer is a growing trend. In 2005, about 84 per cent of first- time buyers were younger than 34 years. Now, however, the average age is 35, according to a recent report from estate agent Savills – and the average age of a first-time buyer is likely to continue to grow.
Trevor Grant, a director of Cedarhill and chairman of the Association of Expert Mortgage Advisers, expects that the average age will continue to get higher, specifically because of the recently introduced Central Bank rules.
“It you’re renting, particularly in Dublin, your capacity to save a deposit of 15 per cent of the value of property is becoming a bit more of a challenge,” he says.
The older you are, though, the shorter a mortgage term you may have to settle for, and it can cause other difficulties.
Already banks in the UK have imposed stricter rules on the ages of people to whom they will lend.
Earlier this month, for example, HSBC told a couple in their 40s that they were too old to get a mortgage, because the husband would have turned 65 by the time the mortgage would need to have been paid off.
The Financial Services Ombudsman subsequently reprimanded the bank for doing so, arguing that the bank “relied on untested assumptions, stereotypes or generalisations in respect of age”.
According to the office of the Irish Financial Services Ombudsman, there have not been any similar cases in Ireland, but given the overall trends, it may only be a matter of time.
So if you have held off buying a home, but would still like to do so, you may want to consider what restrictions banks operating in Ireland apply. After all, time may not be on your side.
What age limits apply?
Typically, banks don’t want to lend to people who will be retired for part of the loan. While there may have been incidences of banks lending to people in their 60s in years gone by, those days now appear to have been left behind.
Now if you are as young as 42 and would like to buy either your first home, or take out a new mortgage to trade up, you may find that borrowing over 30 years is no longer possible.
Bank of Ireland, for example, says it will lend over a 35-year period for first-time buyers and over 30 years for those trading up. However, it imposes a maximum age of 70, which would rule out a 30-year mortgage for a 42-year-old buyer.
KBC Bank imposes a tighter age restriction. While it will also offer a term of 35 years, this only applies up to the age of 65, while you can borrow for 30 years up to the age of 68. This means that at 40, you will find yourself excluded from such a term.
What
if I’m self-employed? If you are self-employed, it may be your intention to work well past the State retirement age,
so you might deem an arbitrary cut-off age as being unfair. However, lenders don’t necessarily take this into account.
Most lenders, for example, have a flat age by which your mortgage should be repaid, although AIB does offer greater leeway for those who work for themselves, allowing them to borrow for up to four years longer.
Can I borrow when retired?
If you are one of the fortunate few with a well-funded pension, you may expect to be able to continue to borrow even when you are retired.
However, you may find that this won’t be the case, as many banks, as outlined above, typically don’t want to lend to people during a time when their income might be uncertain, such as retirement.
“The fear for lenders is that pensions aren’t guaranteed,” says Grant, citing the example of a client in her 50s for whom he couldn’t secure a loan, as she didn’t meet the repayment capacity test over a shorter term.
AIB, for example, allows a 35-year term provided that the mortgage is cleared by the person’s 66th birthday.
“All mortgages are assessed on the basis that they are paid in full prior to retirement,” it says, adding that it will not assess a mortgage based on pensions or any other post-retirement income.
However, given the impending extension to the State pension age, it does offer some leeway.
With the pension age due to rise to 68 by 2028, the bank will allow you to borrow until the day you turn 69, provide that you offer documentation confirming a retirement age of 68.
Similarly, Permanent TSB says: "We do not assess retirement income as part of repayment capacity."
On the other hand, Ulster Bank doesn’t rule out lending into retirement, noting that “if a customer is borrowing into retirement, then evidence of affordability in retirement will be required”.
Don’t despair
While it may be disheartening to learn that your age – which after all you can’t do anything about – may affect the term of your mortgage, it shouldn’t affect your chances of actually getting one. The only real impact is that the term of your mortgage will be shorter.
“The longer you leave it, the shorter the maximum term that might be available,” says Grant.“Ideally, you should be giving yourself a 30-year term.”
The downside of being obliged to borrow over a shorter term of course is that you won’t have the flexibility of extending the term and you will have to be prepared for higher monthly repayments.
Let’s take the example of a €250,000 mortgage. If you borrow at a rate of 3.8 per cent over 35 years, your monthly repayment will be just €1,077, for example.
Crunch the term to 25 years and you’ll have to come up with almost €300 extra, or €1,292 a month, or €1,488 over a 20-year term.
The larger the mortgage, the greater the monthly repayments will be. A €400,000 mortgage, for example, will cost €1,723 to service over a 35-year term, compared with €2,381 over 20 years.
The other impact is that with higher monthly repayments, banks might only offer to lend you a lower amount than otherwise might apply, thus constraining your ability to purchase the property you really want.
It’s going to be cheaper
The good news, however, is that while you may have to pay out more in a mortgage each month, borrowing over a short term can reap significant financial awards.
In the aforementioned example of a €250,000 mortgage, you would pay some €202,401 in interest over a 35-year term, based on a steady 3.8 per cent interest rate. If you took the hit each month and repaid more on a shorter term, your total interest bill would be just €107,296 – or close to €100,000 less.
Another advantage of not being allowed to carry a mortgage into retirement is that it may be the most prudent approach. And if you can manage to clear it well before retirement, you can beef up your pension contributions.
Trading-up problems
Borrowing over a shorter term can also cause problems if you are looking to trade up. For the generation just escaping negative equity, trading up may be done with little or no equity, which means that if you’re north of 40 when doing so, you may have to settle for a shorter mortgage term.
This can make the move that bit more difficult as you will have to face higher monthly repayments at a time when you may still have significant childcare expenses.
Grant also notices the problem coming to light in the case of marital breakdown.
When the couple is in their 50s and one party needs to buy the other out of the family home – which is often now required by the family courts – servicing a mortgage over the short term under conditions the banks will impose can be difficult, and may prevent the transaction going ahead.
