If you thought the self-employed had a hard time in the mortgage market, you’d be right. According to the latest data from the MBT Affordability Index, only 70% of self-employed mortgage applicants found at least one lender able to meet the loan. For customers aged 55 and over, however, the figure was 64%. So why is this and what, if anything, can be done about it?
The over-55s can be self-employed too
It’s important to highlight the fact that there could well be a lot of crossover between the self-employed and the over-55s. In fact, it’s highly likely. By the time you reach 55, you probably have a lot of professional experience and contacts. You may be less and less willing to do the “9-5” run or, bluntly, to deal with workplace politics. Alternatively, you may have become “accidentally” self-employed as a result of job loss.
That said, there are still a lot of over-55s in regular employment. What’s more, they are probably in either upper-management or senior technical roles. There is hence clearly more to the figures.
It’s unclear what sort of property over-55s are buying
The MBT Affordability Index relates to residential property but that covers a very broad spectrum. It also includes people who are buying their next home before selling their current one. This could feasible include a lot of people over-55s.
A lot of people in this age group are likely to be “empty-nesters” downsizing into a smaller property. It’s very likely that they’d want to minimize the upheaval of the move by having their new home ready before they give up their old one.
How easy it would be for people in this situation to get a mortgage would probably depend on the amount of the mortgage versus the equity in their old home plus their income. It is, however, worth noting that smaller homes are not necessarily significantly more affordable than larger ones. They may be less expensive to run and easier to maintain but that might not be enough to tip the balance for a mortgage.
The over-55s are nearing or at official retirement age
Age may be but a number, but mortgage lenders work on numbers. Once you hit 55, you’re, technically, closer to the end of your working years than to the start of them. In fact, it’s entirely likely that you’ll hit retirement age before the end of your mortgage term.
Alternatively, you may already be at retirement age. In the old days, that might have meant that you had a guaranteed pension. These days, however, it’s also possible that you’re using income drawdown. This might give you better returns over the long term, but the returns aren’t guaranteed.
Depending on your exact age, you might be able to get around this by having a mortgage with a shorter term. Of course, this would have implications for affordability. It could also raise questions about what would happen if you were to lose the income from your employment/self-employment.
Lenders have to err on the side of caution
There is a frustrating lack of data on what, exactly, is making it so difficult for the over-55s to get mortgages. Indicators, however, suggest that lenders are simply playing it safe, possibly to the point of excessive caution
On the one hand, this is entirely understandable. In fact, given the current regulatory situation, it may be unavoidable. On the other hand, this situation has the potential to create major long-term issues not just for the housing market but for society as a whole.
If first-time buyers are the life-blood of the housing market then downsizers are the life-blood of the family homes market. The UK simply does not have the space to keep building limitless family homes to accommodate both families and people who can’t move on because they can’t get a mortgage. Urgent action, therefore, needs to be taken to address this situation.
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