NatWest is offering customers mortgages up to the age of 75, as the rising retirement age and surging house prices mean many are working and paying off their home loans for longer.
Customers applying to the bank via a mortgage broker, and existing customers switching products, are now able to apply for terms of up to 40 years, up from 35 previously.
In addition, the maximum age at repayment will be increased from 70 to 75 – though the borrower must still be working.
Loan for life? NatWest has upped the age limit for its mortgage customers to 75, reflecting the fact that people are buying homes later in life and staying in work for longer
The lender said its decision was based on lifestyle changes that meant people were working for longer.
Luke Christodoulides, national account manager at NatWest said: ‘We recognise that lifestyle, working patterns and healthy life expectancy changes have increased significantly.
‘We believe these changes help us to provide support to customers at every stage of their lives.’
Traditionally, lenders required mortgages to be paid off by the time the borrower either retires or reached the age of 70 – whichever came sooner.
This has meant that people sometimes struggle to take out new mortgages once they are in their fifties, or find that they have fewer options and are stuck on more expensive rates.
But in recent years more lenders have been stretching this age limit. Halifax, for example, now allows homeowners to repay their loans up until the age of 80.
With people living longer and pensions becoming less generous for many, some say lenders have been left with little choice but to extend the repayment window.
With the cost of living crisis rampaging out of control, an ageing population and lack of security regarding future pension benefits, most of us will be working until at least age 75 anyway
Rob Peters of brokerage Simple Fast Mortgage
Rob Peters of brokerage Simple Fast Mortgage said: ‘With the cost of living crisis rampaging out of control, an ageing population and lack of security regarding future pension benefits, most of us will be working until at least age 75 anyway.’
Smaller lenders such as regional building societies have traditionally been more flexible on age limits, but their rates can be higher.
As one of the UK’s largest mortgage lenders, NatWest’s decision to raise the age limit should be welcomed by those facing the prospect of taking their home loan into older age.
Financial adviser Scott Taylor-Barr of Carl Summers Financial Services said: ‘Their inability to lend over age 70 previously had caused issues, and I have no doubt they will be receiving more applications due to these changes.’
It could be especially helpful for those on interest-only mortgages, who must find a way to pay off the balance of the loan by the time the mortgage term ends.
Counting the cost: The average age people expect to pay off their mortgage is 59, according to Hargreaves Lansdown, but many think they will still be paying it off in retirement
If they don’t, they are usually forced to sell the property to repay the mortgage lender – though there are now some options to extend their interest-only mortgage into retirement, as we explain below.
Some major lenders already offer 40-year mortgage terms, including HSBC, Santander, Barclays and Nationwide.
There are now over 40 residential lenders where you can have both a 40-year term, and pay it off up to age 75.
How to get mortgage-free quicker
According to data from wealth manager Hargreaves Landsdown, the average age people expect to pay off their mortgage is 59 – but one in six think they will still be paying it off into their retirement.
This has been influenced by people buying their first homes at an older age, and rising house prices meaning some need to stretch repayments over a longer term than the standard 25 years to make it affordable.
Even for those who expect to be working into their 70s, paying off a mortgage in later life is not ideal.
Being mortgage-free would give them the flexibility to retire earlier if they needed to, cut down their working hours or save extra money into their pension.
There are some ways borrowers can speed up paying off their mortgage, however.
Providing they don’t have more pressing debts, and are comfortable with the amount they are paying into their pension, they could consider diverting some money towards overpaying their mortgage to clear the debt faster.
Variable rate mortgages usually allow unlimited repayments, but even fixed-rate deals often permit up to 10 per cent of the outstanding balance each year to be overpaid before early repayment charges kick in.
Those who receive a tax-free lump sum when they take their pension could also use this to clear their mortgage – but only if they are sure they have enough money for retirement without it.
And for those who have significant money in savings, trying to get a better interest rate on that money could help build up a pot which could be used to overpay the mortgage more quickly.
This could be achieved by relocating money from an easy access account to a stocks and shares Isa, for example – provided they understand the risks.
Downsizing is one option for those who haven’t paid off their mortgage by the time they retire
What if I can’t pay off my mortgage by retirement?
A mortgage lasts a long time, and sometimes unforeseen circumstances mean the best-laid plans to get shot of it by retirement fall apart.
There are several options here. If they are in good health, borrowers could consider continuing to work beyond their planned retirement date in order to keep paying off the mortgage.
Another option is to downsize to a smaller property. If the move is planned carefully, the equity gained from the larger property could be enough to buy a smaller home in cash and repay the remaining debt.
There are also some alternatives to traditional mortgages for older borrowers.
Retirement interest-only mortgages are a relatively new type of mortgage product which allow older homeowners to only pay the interest on their home loan until they die or go into long-term care.
After that, the outstanding borrowing is paid off by the sale of their home.
The rates on these are higher than a standard mortgage, but they can be helpful for older borrowers who are coming to the end of a standard interest-only mortgage term, and know that they cannot afford the capital repayment at the end.
There is also equity release. This allows those who are asset rich but cash poor to draw on their home’s value in their retirement, again by taking a loan repayable after their death.
The equity released from their home is paid to them in cash, but there is usually a requirement that some of the loan be used to repay the existing mortgage if it has not already been cleared.
There is no need to make monthly repayments, although there is often the option to do so if the borrower wants to reduce their total debt.
Interest on the loan usually rolls up over many years, adding to the total debt – though most plans have a guarantee that the borrower will not be left in negative equity.
Borrowers can choose to take funds gradually through a process known as drawdown, which limits interest being charged on a lump sum taken out in one go, and in some cases monthly interest payments can be made.
Equity release leave can dramatically reduce the inheritance left for the borrower’s family, however, so should be considered carefully.
Could an offset mortgage help?
One potential option for those who find themselves not wanting to commit their savings to overpaying a mortgage, but who do want to chip away at the balance quicker is an offset mortgage.
These mortgages allow people to set their savings or current account balances against their mortgage debt and only pay interest on the balance.
In return they forgo earning interest on their savings, but with savings rates at low levels they may find this a more efficient way of using pots of cash.
If borrowers then maintain their monthly payments at the same level, less goes on interest due to the offset and more on repaying the debt – helping to get it paid down sooner.
The advantage of an offset over overpaying, is that should the savings pot be needed it can be drawn on at any time, whereas money overpaid on a mortgage is usually not able to be clawed back.
One caveat is that rates on offset mortgages can be higher, so homeowners should do their sums before committing.
> Read more about offset mortgages here