Figures show 82 percent of over-55s are unable to obtain a traditional, retirement or lifetime mortgage when they make an application. A major cause of the growing problem is stringent affordability criteria that penalises people who have taken advantage of the 2015 pension freedoms which allow them to “drawdown” from their pension pots. But this income is disregarded by lenders who rely solely on the lower guaranteed income of any surviving spouse.
The mortgage rules could affect millions of over-55s.
The analysis from retirement mortgage specialist Responsible Life exposes the mortgage trap awaiting many older owners who often want to stay in their home but do not have enough income to cover repayments.
Others, due to their age, are deemed to be borrowing too much in later life, stretching their loan-to-value beyond levels that lenders allow.
According to the data, it means that more than four fifths of applicants in the age group will find themselves disappointed.
Executive chairman Steve Wilkie said: “Retirees are being frozen out of the mortgage market because they are being sabotaged by affordability rules that are not fit for purpose.
“Retired borrowers should be allowed to show a greater variety of repayment strategies to unlock lending.
“These should include plans to downsize, pension drawdown and reverting to lifetime mortgage products at the end of a mortgage term.
“Such flexibility would be in the spirit of other financial innovations that have sought to make it easier for the over-55s to navigate retirement, namely pensions freedoms.
“The interaction between products and their features in the market must be urgently addressed if they are to meet societal needs. The country would feel a net benefit from improvements in these areas.”
The findings about borrowing requirements stem from analysis of data collected by the Retirement Mortgage Service.
It is Responsible Life’s pilot project to create the UK’s first all-product, whole-of-market retirement mortgage broker.
The aim of the pilot was to identify areas where the retirement mortgage market could better serve consumers.
As only the guaranteed income of a surviving spouse can be taken into account for retirement interest-only affordability tests, many retirees are attempting to borrow at ratios of more than 10 times their guaranteed income.
This suggests lenders are confused about how affordability in the market works, the report said.
Similar challenges are posed by lifetime mortgages.
As these products come with the ability to defer and roll-up the interest, they necessarily offer lower loan-to-value ratios, so many older owners cannot access as much finance as they expect.
Ray Boulger, a mortgage expert at brokers John Charcol, said: “Many over-55s will have an option that they might not be aware of.
“The beauty is, if you have enough equity to qualify for a mortgage, you don’t have to prove affordability – and the amount you can borrow increases with age.
“With lifetime mortgages you don’t have to prove income and have the option to pay nothing, pay interest or pay something extra.”