NatWest offers mortgages to customers up to age 75, as rising retirement ages and rising house prices mean many are working longer and paying off their mortgages.
Customers who apply to the bank through a mortgage broker and existing customers who switch products can now request a term of up to 40 years, compared to 35 years previously.
In addition, the maximum age for repayment will be raised from 70 to 75 years – although the borrower must still be working.
Loan for life? NatWest has raised the age limit for mortgage customers to 75 as people buy homes later in life and stay in work longer
The lender said its decision was based on lifestyle changes, which allowed people to work longer.
Luke Christodoulides, National Account Manager at NatWest: “We recognize that lifestyle, work patterns and changes in healthy life expectancy have increased significantly.
“We believe these changes help us support customers at every stage of their lives.”
Traditionally, lenders required mortgages to be paid off by the time the borrower retired or reached age 70 — whichever came sooner.
This has meant that people sometimes struggle to get a new mortgage in their 50s, or find that they have fewer options and are locked into higher rates.
But in recent years, more lenders have stretched this age limit. For example, Halifax now allows homeowners to pay back their loans up to the age of 80.
With people living longer and pensions becoming less generous for many, some say lenders have little choice but to extend the repayment term.
With the cost of living spiraling out of control, an aging population and lack of certainty regarding future retirement benefits, most of us will be working until at least 75 years of age anyway.
Rob Peters from real estate agency Simpel Snel Mortgage
Rob Peters of real estate agency Simple Fast Mortgage said: ‘With the spiraling cost of living crisis, an aging population and a lack of certainty about future retirement benefits, most of us will work until age 75 anyway.’
Smaller lenders, such as regional building societies, have traditionally been more flexible about age limits, but their rates can be higher.
As one of the UK’s largest mortgage lenders, NatWest’s decision to raise the age limit should be welcomed by those looking to take out their home loan at an older age.
Financial advisor Scott Taylor-Barr of Carl Summers Financial Services said, “Their inability to borrow for more than 70 years had caused problems before, and I have no doubt that these changes will see them receive more applications.”
It can be especially helpful for those with an interest-only mortgage, who need to find a way to pay off the loan balance by the time the mortgage term expires.
The cost counts: According to Hargreaves Lansdown, the average age people expect to pay off their mortgage is 59, but many believe they will still pay it off when they retire
If they don’t, they are usually forced to sell the property to repay the mortgage lender – although there are now some options to extend their interest-only mortgage into retirement, as we explain below.
Some major lenders already offer 40-year mortgage terms, including HSBC, Santander, Barclays and Nationwide.
There are now over 40 private lenders where you can both have a 40-year term and pay off up to the age of 75.
Become mortgage-free faster?
According to data from wealth manager Hargreaves Landsdown, the average age people expect to pay off their mortgage is 59, but one in six think they will pay it off until they retire.
This has been influenced by people buying their first home in old age and rising house prices, meaning some have to stretch repayments beyond the standard 25 years to make it affordable.
Even for those who expect to work into their 70s, paying off a mortgage later in life isn’t ideal.
Being mortgage-free would give them the flexibility to retire earlier if necessary, work less or save extra money for retirement.
However, there are a number of ways borrowers can pay off their mortgage faster.
Provided they don’t have more pressing debts and are comfortable with the amount they’re paying toward retirement, they might consider spending some money overpaying their mortgage to pay off the debt faster.
Variable-rate mortgages usually allow unlimited repayments, but even fixed-rate deals can overpay up to 10 percent of the outstanding balance each year before the prepayment charges kick in.
Those who receive a tax-free lump sum when they retire can also use this to pay off their mortgage, but only if they are sure that they have enough money to retire without retirement.
And for those who have a lot of savings, trying to get a better interest rate on that money can help build a pot that can be used to pay off the mortgage faster.
This can be achieved by moving money from an easily accessible account to, say, an equity Isa – provided they understand the risks involved.
Downsizing is an option for those who haven’t paid off their mortgage by the time they retire
What if I can’t pay off my mortgage by retiring?
A mortgage lasts a long time, and sometimes unforeseen circumstances cause the best-laid plans to get out of retirement to shatter.
There are several options here. If they are in good health, borrowers may consider working beyond their scheduled retirement date to pay off the mortgage.
Another option is to downsize to a smaller property. If the move is carefully planned, the equity of the larger property may be enough to buy a smaller house out of cash and repay the remaining debt.
There are also some alternatives to traditional mortgages for older borrowers.
Interest-only interest-only mortgages are a relatively new type of mortgage product that allows older homeowners to pay only the interest on their home loan until they die or go into long-term care.
After that, the outstanding loan is paid off by selling their house.
The rates for these are higher than a standard mortgage, but they can be helpful to older borrowers who are coming to the end of a standard interest-only mortgage term and know they can’t pay the principal amortization at the end.
There is also a stock release. This allows those who are wealthy but have little money to use the value of their home during retirement, again by taking out a loan that must be repaid after their death.
The equity released from their home is paid to them in cash, but there is usually a requirement that a portion of the loan be used to repay the existing mortgage if it has not yet been settled.
There is no need to make monthly payments, although there is often the option to do so if the borrower wants to reduce their overall debt.
The interest on the loan usually accrues over many years, adding to the total debt, although most plans have a guarantee that the borrower will not remain in negative equity.
Borrowers can choose to withdraw money gradually through a process known as withdrawal, which limits interest on a lump sum that is withdrawn at once, and in some cases monthly interest payments can be made.
Custody leave can drastically reduce the inheritance left to the borrower’s family, but this should be carefully considered.
Can a mortgage interest deduction help?
One possible option for those who find they don’t want to spend their savings on overpaying a mortgage, but want to pay off the balance faster, is an offset mortgage.
With these mortgages, people can settle their savings or checking accounts with their mortgage debt and only pay interest on the balance.
In return, they pay no interest on their savings, but with the savings rates at a low level, they may find this a more efficient way to use pots of cash.
Then, if borrowers keep their monthly payments at the same level, less interest goes into the settlement and more goes into paying back the debt, making it pay off more quickly.
The advantage of an offset over overpaying is that if the piggy bank is needed, it can be used at any time, while overpaid mortgages are usually non-refundable.
One caveat is that rates on matched mortgages can be higher, so homeowners should do their sums before committing.
> Read more about compensating mortgages here