Owning your own home has always been the Great Australian Dream. Whether you’re a millennial or a baby boomer, home ownership is a key cultural icon for Australians.
But just as getting up from your favourite armchair gets more difficult as you get older, so too does attempting to get a mortgage for your own home. If you’re over 50, home-loan approval is by no means a sure thing.
And while the steps for buying your own home may remain the same, seniors are also expected to provide extensive documentation and an exit strategy to lenders, so they can be sure the loan will be repaid before retirement.
Mortgage Choice spokesperson Jessica Darnbrough said the reason older homebuyers receive more scrutiny is lenders need to be sure that mortgage repayments can be made.
“If you’re 50 and above, a general life span for a mortgage is 30 years, so you have to prove that you can make those consistent repayments right up until the age of 80, and obviously that’s becoming increasingly difficult,” she said.
You’re never too old to buy…
According to recent data from the Australian Bureau of Statistics, first homebuyers currently make up the smallest proportion of the housing market on record.
But a recent survey by Mortgage Choice has revealed that almost 19 per cent of these potential first homebuyers are aged 40 and over.
The 2013 Mortgage Choice Future First Homebuyer Survey studied more than 1000 Australians planning to purchase their first home.
“Lenders are a little bit wary about lending to borrowers that are older, but if they can show that they are on a good income and they have been responsible with their money to date, I don’t think it should be too much of a problem,” she said.
… But it does get harder
According to Ms Darnbrough, there is a tipping point when it comes to getting a mortgage for those aged 60-65.
“Because 65 is the general age of retirement, lenders will take that into consideration, thinking this person is either on the verge of retiring or will be retiring in five years,” she said.
“Consequently their mind goes to, how are they going to make those mortgage repayments on a monthly basis?”
The Age Discrimination Act 2004 and National Consumer Credit Protection Act 2009 prevents those seeking a mortgage to be discriminated against due to their age.
However, Loan Market’s National Director of Sales Mark De Martino said it’s not about discrimination, but ensuring that borrowers are not put under undue hardship due to their loan.
“We are not to provide an unsuitable loan, and that can include the term of the loan as well,” he said.
“A lender can rightfully ask the question, under their interpretation of the act, is this person really going to be able to pay this mortgage off?”
Ms Darnbrough said that lenders still have to weigh up older borrower’s financial situation, just as they would any other borrower.
“If you’ve been a good borrower and have a big deposit base as well, you might be able to prove that you can pay off that mortgage nice and quickly,” she said.
“Those things will help, but as you do get older, 65 and above, it does get increasingly difficult to source a mortgage.”
The bottom line: There’s no such word as can’t
Ms Darnbrough said that, despite the difficulty of securing a mortgage as an older home-buyer, those with a healthy deposit still had a chance of securing a loan.
“The first thing, make sure they have a good deposit. The bigger the deposit, the more willing lenders are to loan.”
The introduction of comprehensive credit reporting in March/April this year will also be of benefit to seniors with a good credit history, she added.
Under Australia’s current credit reporting system only negative data, such as mortgage defaults, missed payment and unpaid bills, are looked at when calculating an individual’s credit rating.
Comprehensive credit reporting (CCR), implemented in March of this year, will include recent positive behaviour into an individual’s credit profile as well, giving borrowers with a good credit history (with repayments made on time) better credit offers and lower interest rates.
Ms Darnbrough said this will allow lenders to take a more holistic view of a borrower’s financial history.
“Make sure you have paid all your bills on time for at least two years before jumping into a mortgage, so when a lender looks back on your financial history they can see that you’re responsible and reliable.”
Top five tips for older mortgage applicants
Mr De Martino said there are five things senior homebuyers should consider when purchasing a property:
• Show a good borrowing history (either another mortgage or other debts).
• Demonstrate a good savings history, including share portfolios or other investments.
• Demonstrate a suitable balance for your superannuation fund.
• Have an exit strategy prepared, so lenders know how you will repay the debt after your retirement or death.
• Don’t be discouraged if a bank says no. Having a good broker can help find the loan that is right for you.