Borrowers aged over 50 are finding it increasingly tough to get mortgages. And those as young as 50 could get a straight “no” from the bank for both new mortgages and top-ups, say mortgage brokers.
Around one-fifth of people aged 65 and over are still paying mortgages, according to data from credit agency Centrix. That flies in the face of assumptions made that people pay off their mortgages before they retire.
“We're not necessarily talking about your 70- and 80-year-old,” says mortgage adviser John Bolton, of Squirrel. The Credit Contracts and Consumer Finance Act 2003 (CCCFA) is part of the problem. But ageism starts to kick into mortgage criteria around age 50.
The first to be slammed are often divorcees, says Jeff Royle, mortgage adviser at iLender. The couple may have an expensive home and no mortgage. When they split, they need two mortgages and the bank says “no” because they can’t pay it off before the age of 65-70.
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When doing their due diligence, banks are cautious about lending to borrowers who will retire before the loan is paid off. They assume that person will no longer be working.
Yet people aged 65 or 70 often still have good jobs paying healthy incomes and can afford that mortgage, says Stephanie Clare, chief executive of Age Concern. Banks don’t always see it that way.
Bolton says a classic example of the unfairness of the mortgage criteria for older borrowers was sitting on his desk when OneRoof called. The client was 71, had cancer, and needed to top up his mortgage to stay in the home. The bank had refused.
The house is valued at $2.5 million and the mortgage would only be $700,000, says Bolton. Income from three boarders would cover the payments for an interest-only mortgage.
The bank was concerned about how the borrower would pay the mortgage off and said no to interest only, demanding principal and interest payments, which pushed the repayments too high. “He doesn't need to pay it off,” says Bolton. “He will sell the house (and repay the loan) when he's ready.”
The client is now forced to either sell his beloved home or he must re-mortgage with a second tier lending at a cost of $14,000 more a year. “That's $14,000 of real cost on an old fella. And it shouldn't be happening.”
Such problems are only going to get worse for older clients when the CCCFA and its regulations become tougher on October 1 this year, requiring more due diligence on affordability and suitability. Banks will become even more sensitive to affordability on paper.
Yet between 2017 and 2020 the number of mortgage holders aged 65+ increased by 16%, says Keith McLaughlin, managing director of Centrix. The number of mortgages being paid by people aged 50-plus is 525,000, up slightly on last year and for 65+ is marginally down at 128,000, says McLaughlin. That reflects the larger sizes of mortgages in Auckland in particular.
Some of those people are raising money against their own homes to get their adult children on the property ladder, McLaughlin adds. It’s not necessarily that they can’t afford their homes.
Mortgage Managers adviser Stuart Wills says as well as the CCCFA changes, the introduction of debt-to-income ratios later this year could be another impediment to older borrowers, hitting the self-employed and those don’t have income from a day job. It’s not yet known how the registered banks will calculate income when that happens. “This may even force all banks to have a standard approach to this which means the customer has (fewer) real options as the points of difference is no longer a factor.”
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Wills says a shorter term loan will be more acceptable to the bank than a 30-year one. That may get the borrower over the line.
Royle adds that older clients who are going to succeed need a clear exit strategy that shows how the loan will be paid down. He secured a 20-year mortgage for a 67-year-old borrower this month because the man had four rental properties, which would eventually be sold, and the capital used to pay off the loan. Buyers who want a 90% mortgage, however, over age 50 are probably out of luck, he adds.
Another way to look more appealing to the bank’s mortgage criteria is to pay down consumer debt. Borrowers should be wary of regular expenses on their bank statements such as coffees, gym memberships and buy-now-pay-later deals, says Royle. The banks see these as expenses that reduce serviceability.
There is some good news for buyers aged over 50. Some may find their affordability situation improves when their teenage children move out or start paying board, says Wills. What’s more, most people in the 50+ age bracket are first-home or second-chance buyers and can access KiwiSaver to buy.
Failing all, advisers can often get loans for the buyers from non-bank lenders, he says.
