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How to Get a Pension Mortgage deal
Looking for the key to getting a Pension Mortgage Deal? Our mortgage advisors are here to help you secure the right product for your needs, whatever your circumstances.
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Using Retirement Income to Secure Home Financing
There are a wide variety of pension mortgage schemes and types out there. While they may differ in some characteristics, they all depend on having a reliable source of income to repay the mortgage.
If you’re a pensioner, you might be wondering whether you can use your pension income to land a mortgage. The good news is it is possible to get a pension mortgage if you receive the right advice. We’ll walk you through everything you need to know about this type of mortgage and how to qualify for one.
Can You Qualify for a Mortgage with Pension Income?
Applying for a mortgage using a pension as a source of income is possible! This is because pensions are considered a highly stable income, so you can largely establish your ability to repay your mortgage as long as your pension income can cover it.
Despite that, pension mortgages can be slightly different from traditional mortgages or even standard interest-only mortgages, especially when it comes to eligibility.
As you might’ve expected, age could be the main issue that high street banks and other lenders are concerned with when it comes to making decisions about whether to offer mortgage deals.
Since mortgages are supposed to be paid over a long period, there’s typically an age limit to how old a person can be to become eligible to apply for a mortgage.
However, many lenders have special mortgage products that are suitable for pensioners.
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Which Lenders Offer Mortgages for Pensioners?
The lending criteria regarding offering mortgages to pensioners varies from one lender to another, especially in terms of flexibility. For example, some mortgage lenders accept pensions as a sole source of income to repay a mortgage.
On the other hand, other lenders may only accept pensions as a source of income if you already have another income as your primary source of income or accept them with a heavily reduced payout.
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How Much Can a Pension Mortgage Offer?
This highly depends on what you want a mortgage for. For example, in most cases, a pension mortgage is an interest-only mortgage, which offers you a wider range of choices depending on your affordability and credit score.
If you mainly want a pension mortgage to buy a residential property, you can typically borrow up to 4 to 5 times your annual income. However, depending on the lender’s policy, you may need a primary income to repay your mortgage alongside the pension as a secondary source.
The best way to properly estimate how much a mortgage plan can offer is by going through a specialised mortgage broker to explore your options.
What Are the Required Criteria for Pension Mortgage? - Part 1
As a rule of thumb, all mortgage plans require you to meet some eligibility criteria in order to qualify for a mortgage.
Here’s a brief overview of the necessary aspects to consider while assessing your ability to apply for a mortgage.
Age Limit
Your age is the main hurdle and limiting factor when it comes to applying for a mortgage while using a pension as a source of repayment.
Since a pensioner is someone who’s mostly past their retirement age, they’re typically close to the upper age limits that most lenders set.
For instance, many mortgage providers may cap their borrower limit to around 75 years.
However, there are still some lenders who may extend the age limit to 85 or remove it altogether if the borrower meets other eligibility criteria, such as having multiple sources of income.
Affordability
While the age limit is an exception for pensioners, affordability is the main aspect that lenders consider while accepting or denying a mortgage.
This one describes your ability to repay the mortgage in full throughout its period. Luckily, the stability of pension schemes makes them highly reliable when it comes to paying interest or making regular repayments.
Credit Score
Your credit score describes your ability to commit to paying back your loans by checking your repayments made on your credit card.
Lenders and financial institutions use these systems to find out whether you constantly pay your liabilities, including mortgage repayments, on time. Having a good credit history qualifies you for better mortgage offers, such as lower interest rates.
The Type of Pension
There’s a wide variety of pension schemes out there. Since these schemes differ in properties, some lenders may actually offer mortgages to specific types of pensioners while denying others.
Here’s a list of the pension schemes that lenders would typically accept as an income method while assessing a mortgage request:
- Employment pensions
- State pensions
- Disability benefits pension
- Veteran and armed forces pensions
- Widows pensions
- Stakeholder pensions
- Some private pensions
Frequently Asked Questions
What Are the Required Criteria for Pension Mortgage? - Part 2
The Initial Deposit
If you’re opting for a mortgage to buy a residential property, the deposit may also have an impact on the acceptability rate of your mortgage application.
For example, many lenders will only provide a mortgage if you can offer a deposit of at least 5% to 10% as a down payment.
However, if you manage to put down a deposit of 15% or higher, your chances of landing a mortgage deal could be much higher.
Your Overall Income
As previously established, some lenders won’t accept mortgage applications if a pension is your primary or sole source of income.
However, if you already have a high overall income, you’ll have a much wider variety of lenders to choose from while applying for a mortgage.
How You Receive Your Retirement Income
The flexibility of your pension can also contribute to its acceptance rate. For example, if your pension is defined and is provided in the form of monthly benefits, it’ll become much easier to apply for a mortgage.
On the other hand, if you receive your pension as annuities, your choices will be limited because of the restrictions on withdrawals.
What Alternative Mortgage Plans Available for Pensioners?
Are pension mortgages and pension-linked mortgages the same?
A pension mortgage, also known as a “pension-linked mortgage”, is a type of interest-only mortgage that contributes to the personal pension plan of the borrower.
This scheme aims to provide a tax-free lump sum of which a portion is used to repay the capital at the end of the mortgage period and the rest is used to provide the borrower with a pension after retirement.
As you can see, a pension mortgage is different from applying for a mortgage while using your pension as a source of income for repayment.
Can I borrow money against my pension?
Final Thoughts on Mortgages For Pensioners
Getting a mortgage as a pensioner isn’t always as difficult as you might think. As you can see, many lenders can find your pension as a suitable source of income as long as you meet all the other requirements for a mortgage.
If you want more information about applying for a pension or whether you qualify for one, clickhere to get in touch with our team and we’ll provide you with all the help you need along the way!
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