Pension income is assessed as part of your overall financial profile by lenders. Characteristics such as the amount and stability of your pension income will be considered.
Regularity and stability of your pension payments are vital as some lenders offer more favourable terms if you have a guaranteed pension income, ideally for life; it also helps if any pension income will be passed to a spouse upon death if applying in joint names.
Lending into retirement is becoming more popular, and rising living costs, increasing debt, and aspirational lending, for example, holidays and gifting to family, are driving the need for lenders to become more flexible when considering lending past the standard retirement age.
Our experts will help you use your pension to get a mortgage. We’ll assess your options and provide personalised advice. Get in touch with us today.
Can I use my pension to get a mortgage?
The answer is yes. You can use your pension to get a mortgage. Your pension income will be assessed to make sure it is sufficient to cover mortgage repayments, and they have their own rules on how they determine this.
Here is a list of the pension schemes suitable for a mortgage:
- Armed forces pensions
- Self-invested personal pensions SIPPs (withdrawing monthly income)
- State pension scheme
- Employer pensions
- Stakeholder pensions
- Private pensions
- Widows pensions
- Disability pensions
- Defined contribution pensions
However, be aware that SIPPs can only be used to purchase commercial property directly, not residential property. On the contrary, most lenders will consider income from SIPPs for pension-backed mortgages to assess your affordability as long as it complies with the lender’s criteria. Even undrawn pension pots can be used to assess the lender’s affordability.
If you are not sure whether your pension income will be deemed suitable for a mortgage, contact a mortgage broker like Simmonds Mortgage Services, and we will get in touch.
What if I am not a pensioner yet and looking to get a mortgage in the future?
If you’re not a pensioner yet but are planning to secure a mortgage in the future, lenders will assess your current annual income, savings account, and financial stability. Upon approaching retirement, your future pension income and retirement plans will be reviewed to ensure monthly mortgage payments can be paid.
You should also ask your pension provider to confirm your retirement age, current pension pot value, predicted pension pot value and expected retirement income. It is wise to save diligently and discuss how your future pension may affect your mortgage application with a mortgage broker. Lenders are looking to see that you can continue to make mortgage payments into retirement.
What types of mortgages can pensioners get?
An Equity Release scheme allows older borrowers and pensioners to get an amount of money based on the market value of their property. You could use this to pay off your mortgage, fund your retirement or pay for a major purchase.
The two mainstream types of equity release are home reversion and lifetime mortgages:
- Lifetime mortgage: Lifetime mortgages allow you to borrow money through a mortgage, and your property’s total market value determines how much you can loan. This loan will be paid off when you pass away, sell the property or if you move into long-term care.
- Home reversion: A Home Reversion plan involves the exchange of a part or the whole of your home for a lump sum, as income, or both. An equity release provider will give you a certain amount for your property and provide tenancy rights to you for the rest of your life.
We highly recommend consulting an independent financial adviser first before applying for an equity release scheme, as they have heavier effects on inheritance and tax.
Retirement interest-only mortgages
Specifically designed for older borrowers, RIO mortgages only need interest payments throughout the mortgage term, which is very similar to standard interest-only mortgages, except there is no set term for the retirement interest-only mortgage. The original loan is instead repaid when the borrower passes away, sells the property, or moves into long-term care.
A standard interest-only mortgage often has age limits for when the term must end, usually between 70 and 85 years, whereas most mortgage providers do not pose a maximum age limit.
Guarantor mortgages for pensioners
This a type of mortgage where a guarantor, often a close relative or friend, agrees to take responsibility for the loan if the pensioner isn’t able to make the monthly payments. This can help pensioners with financial constraints like a limited income or poor credit rating to secure a retirement mortgage.
Joint Borrower Sole Proprietor mortgages for pensioners
This is a type of mortgage for pensioners where two or more people apply for the mortgage together (in most cases this is usually a parent and a child/relative), however one person – the sole proprietor – owns the property.
The joint borrower helps to support the mortgage with their income, but does not have ownership rights. This option can increase your borrowing potential while retaining ownership and make it easier for you to meet the lender’s affordability criteria.
At Simmonds Mortgage Services, we believe in going above and beyond to guide our clients through the mortgage process. See how we helped a retired couple in Wokingham get a JBSP mortgage.
Traditional Term Mortgages
Traditional high street mortgages can still be used even if you are retired or close to retirement. Long are the days lenders stop lending at 65 or 70.
If you can evidence a sustainable income into retirement, then the majority of lenders can lend to people aged 75 and 80 or even with no cap on age.
Common sense is taken, and if your income is sustainable, then finding options may be easier than you think.
Is there such a thing as pension income mortgages?
Yes, these are designed for retirees, which allows you to use your pension income to qualify for a mortgage.
Lenders will assess your ability to make the monthly repayments based on your pension and will likely offer mortgages with higher age limits and lower loan-to-value ratios to make sure the pension has enough stable income to make the monthly interest repayments. They aren’t always called pension income mortgages and are often the same rate as traditional mortgages.
Most High street lenders like HSBC, Santander, NatWest and Nationwide accept pension income when you apply for a mortgage, as well as specialist lenders like certain building societies. Get in touch with a mortgage advisor like us to find out which lender will give the best mortgage based on your terms.
What do lenders consider when pensioners apply for a mortgage?
Many lenders take into account several factors to assess your eligibility for a mortgage:
- Pension income
- Affordability
- Age and mortgage duration
- Good credit history
- Property value
- Financial commitments and existing debts
- Health and longevity
- Equity and deposit
- Rental income if received
- Repayment vehicle assuming the mortgage is interest-only
How to get a mortgage as a pensioner
Firstly, you should consult an experienced mortgage broker like Simmonds Mortgage Services, as we will help you find the best deal for you.
We will guide you along each step of the way to obtaining your pension mortgage:
- Preparing the necessary pension documents and paperwork required for your application, such as bank statements, annual pension income and pension statements
- Checking your credit history and ensuring your credit report is optimised by removing any inaccuracies
- Finding the right mortgage providers for you who offer the best rates
Can I use my pension funds for a house deposit?
Yes, you can use a tax-free cash lump sum as a deposit for a house. If you are 55 or older, you can withdraw 25% of your pension as a tax-free lump sum for any purpose, including buying a property, and it would make financial sense to use this as funds for a deposit.
Get pensioner mortgage advice from Simmonds Mortgage Services
Our experienced mortgage brokers will work closely with you to understand your unique financial situation and goals. We’ll assess your options and provide personalised guidance on the best way to use your retirement savings to secure a mortgage. Contact us on 01184 693037 or book a meeting today.
