The Rise of Buy-To-Let Mortgages For Older Borrowers
May 14, 2019
We’re all living longer, and while the retirement age has been increasing, it hasn’t kept up with the increase in life expectancy. It’s no wonder that more people close to or of retirement age are considering investing in the property market to bolster their pensions and generate supplementary income. The steady revenue from a rented property should help bring in a little extra cash, reduce retirees dependence on their savings or pension, and provide that invaluable perk – peace of mind.
However, unless you can afford to buy a property outright, the chances are as an older borrower you’ll need a mortgage loan in order to invest. Historically, it’s been difficult for people to secure a buy-to-let mortgage, or mortgage of any description, later on in life as lenders have been unwilling to offer loans to retirees. However, this is quickly changing, with a recent rise in buy-to-let mortgages specially aimed at older borrowers.
Money to spend
In 2015, new pensions rules were set by the government which gave people greater freedom and flexibility in terms of what they can do with their pension savings once they reach retirement. Now, as soon as you reach the minimum pension age, you can take your money out in lump sums or as regular income payments.This means that more older people have been using their pensions savings to invest in the property market through buy-to-let properties. This comes as no real surprise considering that buy-to-let properties are such worthwhile investments. Not least because rising property prices and increasing rental demand is making investment in the buy-to-let market so attractive.
Is there an age limit on buy to let mortgage?
When it comes to buy-to-let mortgages, there are a few age restrictions. Currently, most mortgage lenders will not grant a buy-to-let mortgage if you’re over the age of 70. But there is a silver lining. Some lenders have no upper age limit when it comes to lending, which means as long as you start the mortgage before a certain age, you can be granted a buy-to-let loan. Nationwide will lend to older buy-to-let investors through their lending arm The Mortgage Works, but the catch is that you have to be under 70 when you apply for the mortgage in the first place. Plus, the maximum term is 35 years. They have also just released a range of retirement interest-only mortgages for older borrowers.
Lenders including National Countiers Building Society, Harpenden Building Society and Bath Building Society have no upper limit for their mortgage lending, evaluating each case individually instead of painting everyone with the same brush. There are also a few lenders who have a maximum age limit set to 85 years. Santander, for one, increased its maximum age at the end of a mortgage term from 75 to 85 years, and the maximum term to 40 years. Another, Leeds Building Society, offers buy-to-let mortgages for retirees with no minimum income required. However, you do need to demonstrate that you have a primary income, whether that is through a salary or savings.
Another way around the age restrictions of attaining a buy-to-let mortgage loan is to apply as a limited company. This is because some lenders do not place any age restrictions when it comes to limited companies. So if mortgage lenders are reluctant to grant you a buy-to-let mortgage loan for age reasons, approaching a lender as a limited company could be your way around it, particularly if one of the directors is younger than 70 years old.
Wondering where in the UK to invest? Here’s the UK’s top buy-to-let hotspots to invest for 2019.
Once you get around the buy-to-let age restrictions, there are also a few factors which might affect your eligibility for a buy-to-let mortgage as an older borrower. This could result in you being refused a mortgage loan by lenders, so being aware of them beforehand might prevent avoidable refusals.
Buy-to-let mortgages differ from normal residential mortgages in that instead of your affordability being based on your income, pension and savings, it is based on the rental income of the property. Most rental incomes for buy-to-let properties will need to be 125%-145% of the mortgage payment in order to be granted the loan in the first place. For example, if you had a mortgage payment of £800 each month, then you would need to be earning a monthly rental income of £1000-1160 from your buy-to-let property.
However, sometimes your personal financial profile will be assessed to evaluate your ‘ability to pay’, or a lender may specify that you need a minimum income to reassure them that you have a regular revenue source to fall back on. If you are retired, the chances are this regular income will be your pension savings. If you enter retirement with outstanding debt, such as mortgage repayments on your home, you may be deemed not financially suited for a buy-to-let mortgage.They are also likely to take your credit rating into account to show whether you are a reliable borrower.
How can Vesta help?
If you are interested in applying for a buy-to-let mortgage, talk to a reliable mortgage broker for advice about your eligibility and whether it is a worthwhile investment for you in the long run. Before going head first into a buy-to-let investment, it’s also a good idea to know about the starting costs involved.
When you’re ready to go ahead with a buy-to-let mortgage, it’ll be time to start looking at where and which properties to invest in, as this will affect the value of your buy-to-let mortgage from your lender. That’s where we come in…
At Vesta, we specialise in selling buy-to-let houses and properties with tenants in situ to landlords who want reliable, long-term property investments. Each property is individually assessed so you’ll know exactly what to expect before taking the plunge. With over 500 properties across the UK on our online marketplace, we can help you find the perfect property to fit what you’re looking for. Check out our current listings or get in touch with our knowledgeable team today.