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Mortgage Applications Based on Pension Income

An expert overview of how your pension income factors into mortgage affordability and finding a suitable mortgage lender in your retirement years.

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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Mortgage Applications Based on Pension Income

Being retired and receiving a pension doesn't mean you can't get a mortgage - and there are a growing number of products on the market specifically designed for pensioners.

Here we'll explore how lenders assess pension income and what other factors impact your likelihood of getting mortgage approval.

For tailored advice from an independent broker, contact Revolution on 0330 304 3040, or send us a message to [email protected].

What Mortgage Products Are Available to Pensioners?

There are a few different options, with several mortgages aimed at people over 55.

Let's consider the pros and cons of traditional mortgages vs equity release (or retirement mortgages) and interest-only options.

Traditional residential mortgages are available, provided you have a broker to select a lender who offers:

  • Mortgages without any upper age cap.
  • Acceptance of 100% of pension income
  • Lending up to four or five times your annual income.

Equity release mortgages are easier to qualify for, with the core benefits being:

  • Zero monthly repayments.
  • No income assessment.
  • Larger values are available depending on the value of your property.
  • You can apply even if you have severe bad credit issues.

In short, an equity release mortgage is loaned with interest charges already rolled into the total. When the homeowner dies or goes into care, the lender sells the property, recoups their lending, and any balance goes to the estate.

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Are Interest-Only Mortgages a Good Idea for Retired Applicants?

The main reason you might opt for an interest-only mortgage is that the monthly payments are lower. However, the big issue is that you must have an exit strategy that demonstrates how you will repay the original loan value at the end of the term.

Your repayment vehicle might be a savings account, an investment, or perhaps selling the property.

Interest-only mortgages can be much easier to pay from a pension, and some lenders will accept your 25% tax-free withdrawal from your pension scheme as a way to pay back the pension balance.

How Do Lenders Assess Mortgages Based on Pension Income?

Lenders all use different policies and criteria, so there isn't a set eligibility criteria you will need to meet. Mortgage providers will look at:

  • What type of mortgage you want to take out.
  • Whether you are retired, working, or wanting a mortgage that will run into your retirement.
  • Your age at the point of application and the end of the term.
  • How much you earn on your pension, what type of pension it is, and how long it has been paid for.
  • Whether you have any other income sources.
  • Standard criteria, such as your affordability, credit history, property type, and what the Loan to Value ratio will be on the mortgage.

What are the Interest Rates on Pension Mortgages?

Interest rates are relatively typical and the same as you'd expect to see on any other residential mortgage.

These depend on how risky your application is, how much deposit you have and whether you have an adverse credit history.

Can I Get a Pension Income Mortgage with Bad Credit?

Having a bad credit history will make it trickier to find a pension mortgage, but there are specialist lenders who might help.

Mortgage products are available for people with no credit score, arrears, CCJs, defaults and even bankruptcy history.

How Much Can I Borrow on a Retirement mortgage?

You can get a mortgage when you are retired or when you are working but will be returned before the end of the term.

These work a little differently:

  • If you're already retired, the lender will use your pension income as a basis for your affordability assessment. Usually, they can lend a maximum of three or four times your gross income.
  • If you are approaching retirement, the process is a little different. The lender will calculate affordability on your current salary but will need to see pension statements to demonstrate how you will keep up those payments after your retirement date.

You will generally need to provide pension paperwork if you expect to retire within ten years or if the end of the mortgage term will be within ten years of your expected retirement date.

Is There an Age Cap on a UK Mortgage?

There can be, yes. Some lenders will only accept new applications from people aged 60-65 as a maximum.

Other lenders have no limits at all.

Likewise, you might find that you are offered a shorter mortgage term if a lender will only provide a mortgage that will end before age 70, or sometimes 75, whereas others have no caps on this age either.

What Type of Pension Income Counts Towards a Retirement Mortgage?

There are hundreds of different pension schemes. Most mortgage lenders will include 100% of that income in their affordability assessment.

Eligible pensions usually include:

  • State pension and disability pension income.
  • Armed forces pensions and widows pensions.
  • Private pension schemes and self-employed retirement income.

To evidence your earnings, most mortgage providers will ask to see:

  • Pension statements showing the monthly pension value.
  • Pension certificate if you have recently retired.
  • Your business accounts if you continue to earn rental income or own company shares and have other income streams to include in the calculations.

Many lenders will ask for pension statements and bank statements over three or six months. Therefore, if you have just retired, it can be advisable to wait three months before applying for a mortgage.

Can I Mortgage Any Property as a Pension Applicant?

Within reason, yes! Traditional properties (i.e. those built of bricks and mortar) are the easiest to mortgage since they are standard construction and the lowest risk.

If you wish to mortgage an unusual property through a pension income mortgage, you will need to apply to a specialist lender who is comfortable with non-standard constructions.

Do I Need a Health Check for a Pension Income Mortgage?

No, lenders cannot discriminate based on your health.

Can I Get Pension Mortgage Insurance?

Insurance is always a good idea if you wish to offset any risks. It is likely to be more expensive if you rely on pension income but can be money well spent.

For example, if you have a joint mortgage on pension income and one applicant passes away, your insurance will guarantee that you will not lose your home.

Can I Transfer a Pension to my Mortgage if a Joint Applicant Passes Away?

Losing a partner is extremely tough and can have financial repercussions if you were reliant on both pensions to keep up with your mortgage payments.

In some cases, you can transfer their pension and use this towards the mortgage, although a lot depends on the pension scheme's rules and conditions.

Expert Support with Pension Income Mortgages

For expert advice on the range of pension income mortgage products, contact the business finance broker team on 0330 304 3040 or email us at [email protected].

As an independent, whole-of-market broker, we can recommend any product from any lender that we believe is most competitive and best suits your requirements.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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