James Powell, Consultant Mortgage Broker, looks at current age restrictions in the buy to let space and explains what you can do if you’re an older landlord who feels like you’ve been locked out of borrowing due to your age.
Reasons you may want a new buy to let mortgage when you’re older
There are three main reasons you may want a buy to let mortgage when you’re older (when I say older, I mean 65+ when approaching or in retirement). It’s worth pointing out that these reasons are not exclusive to “older” landlords by any means, and you may well already be considering these options at 30!
Remortgaging: If you’re an existing buy to let landlord, you’ll likely remortgage your properties on a reasonably regular basis to ensure you’re on the most cost-effective rate (among other reasons). If like many older landlords, you’re not ready to sell your buy to let investment property, you may want a new fixed-term rate to continuing maximising your profits.
Additional income during retirement: many older landlords use rental income as a top-up income alongside their pension during retirement. While some may invest in a buy to let property before retirement hits, there are plenty who decide to invest during retirement!
Inheritance: We’re living longer, which means you might come into inheritance later in life. We have many clients who still decide to use inheritance money to invest in buy to let property in their late 60s and 70s.
Can I get a mortgage after I retire?
The short answer is yes! Any potential problems caused by retiring when trying to obtain a buy to let mortgage are practical issues, rather than a general policy issue with retirees. I.e. it’s not that you’re retired that’s causing the problem; it’s more likely that because your income may drop as a result of retiring, you no longer meet affordability thresholds. If the lender is concerned your pension income won’t cover void periods, then this is where you’ll run into issues.
Of course, many buy to let lenders don’t have a minimum income requirement; they rely on their rental coverage stress tests rather than a minimum ‘ backup income’. So, the slightly longer answer is still yes, subject to meeting the lender’s standard eligibility requirements.
How much deposit is required for a buy to let retirement mortgage?
For the most part, as long as you meet the criteria for a buy to let mortgage, your required deposit is the same as any other borrower. While a 40% deposit will give you access to the most competitive mortgage rates at 60% loan to value (LTV), 75% LTV tends to be the norm and has a lot of choice in terms of mortgage rates.
Some lenders do have a slight restriction on maximum LTV based on age. One big player in the buy to let space requires that borrowers over 70 have all their properties at 65% LTV or lower. Fortunately, this lender has very competitive pricing, making it a strong contender for older landlords. So, as you approach 70, you may wish to reduce the leverage against your portfolio to 65% or below to take advantage! Even if you’re on interest-only mortgages (like many landlords), as house prices rise, but your interest-only mortgages stay static, your portfolio should naturally reduce its leverage if you don’t continually re-mortgage to extract further equity. While you may wish to maximise leverage early in a portfolio’s life to help build it up, later, as you get to your 60s, you may want to get it in shape to continue past age 70 at the best possible rates!
What is the maximum age for a buy to let mortgage?
The majority of buy to let lenders have caught up with the times and now have maximum borrower ages at the time of application between 79-85, with 25 lenders allowing you to go to 85 at the end of term. Even better, there are 17 lenders with no upper age limit at the point of application for personal and limited company applicants.
Buy to let lending to limited companies
It’s fair to say that lenders tend to be a lot more flexible with age if you’re applying through a limited company. The reason being that succession is much easier to plan for with a limited company; you can add those you’d like to inherit your portfolio as shareholders or even directors ahead of time. In the unfortunate event that you pass away before you repay the mortgage (or sell off the property), ownership of the property and mortgage is already in place. From the lender’s perspective, this is a lot easier to manage.
Could I use an equity release mortgage?
There are two ways equity release could play a part in buy to let property investment. The first, and probably most common, is taking an equity release mortgage on your own home and using the funds raised as a deposit for a buy to let property. Most buy to let lenders will accept this as a deposit source.
The second, and considerably less common, would be to take an equity release buy to let mortgage against an investment property. Currently, there are only two buy to let lenders that offer equity release mortgages. Since these properties are income generating, there’s often little benefit to making this arrangement. However, if you’d like to preserve a higher cash flow, or if you wouldn’t otherwise meet the criteria requirements for a BTL mortgage, but the asset has great equity, this could be an option. With an equity release mortgage, the arrangement is that the lender will sell the property once you pass away to recoup the funds, plus the rolled-up interest. Therefore, you could still be taking an income from the rent and not making repayments which will undoubtedly give you more cash for those years.
If you’d like to know more about equity release mortgages, whether for your own home or a buy to let property, do get in touch, and we can talk through them in more detail!
To summarise, age isn’t the limiting factor it used to be when it comes to buy to let mortgages. Lenders have realised that we’re working and living longer as a population, and more people use buy to let investment as part of their retirement plans. If you’d like to talk through the options that might work for you, do get in touch with me, James Powell, on 01732 471651 or email me email@example.com, and I’ll be more than happy to help.