Can You Get A Mortgage On A Pension?

When you think about getting a mortgage, images of buying your first home or upsizing to accommodate your growing family probably spring to mind. We spend our whole working lives making payments to pay off our mortgages, assuming that once retirement is reached, borrowing against our homes will no longer be necessary or possible.

However, the reality is that the need for financial flexibility doesn’t just go away later in life. In fact, a mortgage can be the key to greater freedom when approaching or in retirement. Whether it’s to clear an interest-only mortgage, help family, improve your home, or simply have more money to spend on what really matters, there are a number of reasons why you might wish to get a mortgage later in life.

This raises a critical question: can you get a mortgage on a pension?

The answer to this question is yes, you can get a mortgage on a pension. However, the process and options vary quite significantly from a conventional mortgage. Let’s explain…

Pension Income & Mortgage Affordability: Explained

While the affordability criteria vary quite significantly compared to a mortgage you’d get on a regular working income, it is absolutely possible to secure a mortgage using pension income. Instead of assessing earnings from employment, lenders willing to accept pension income will focus on whether said income is enough to cover the repayments both now and in the future. 

The lender will look at how your guaranteed income matches up with regular outgoings, and make a judgment on how resilient your finances will be over the long term. If they are going to lend to you until much later in life, they’ll want reassurance that the repayments will remain affordable throughout your entire mortgage term.  

What Types Of Pensions Do Mortgage Lenders Accept?

Most lenders will consider a range of pension income sources, though this can vary from lender to lender. Typically, those eligible to get a mortgage on a pension can do so via:

• State pensions
• Workplace pensions (both defined benefit and defined contribution pensions)
• Private pensions

You can also put your pension income towards mortgage affordability if you are still in work, for example, if you are partially retired and still working part-time. 

How Older Borrower Mortgages Work

If you do meet the eligibility and affordability criteria, a mortgage on a pension will take the form of an older borrower mortgage. These products work in a similar way to a conventional residential mortgage but are designed specifically for those borrowing later on in life.

With an older borrower mortgage, you can usually choose between repayment and interest-only options. One of the key differences is the age limits. While standard lenders often impose strict maximum ages, specialist lenders might allow mortgage terms that extend into your 70s, 80s, and, in some cases, even age 90 at the end of the term.

Other Later Life Mortgage Options

If one of these more conventional-style mortgages is not suitable, fear not. There are other later life mortgage options that will still allow you to achieve your financial goals by borrowing against your home.

These are:

A retirement interest-only mortgage – A type of mortgage for borrowers aged 50 and over, which requires you to make monthly interest payments. The loan itself is then repaid when the last surviving homeowner passes away or moves into long-term care. Because the repayments are interest-only, the monthly costs are often lower. However, they are required and therefore your income (which can include a pension) will be taken into account to determine affordability.

A lifetime mortgage – A type of later life mortgage for those 55 and over with no required monthly payments. Instead, interest rolls up, and the amount borrowed plus interest is repaid from the eventual sale of your home. Although optional payments can be made to manage the interest, the fact that there are no required repayments means that income is not relevant to affordability. 

How To Work Out What’s Right For You

Though the answer to “can you get a mortgage on a pension?” is a yes, the right solution will depend on what your pension looks like, your reasons for getting a mortgage, and the type of payments you wish to make both now and in the future.

For some, an older borrower mortgage assessed on pension income offers a familiar repayment structure. For others, a lifetime mortgage with no required repayments might be a better fit. That’s why carefully assessing your options is always key, and this is something we can help you with at Mewstone Later Life.

We’ll look at your full financial picture, including your pension income, other income sources, and the value of your home, to help you understand both what you can do and what you should do. It’s our mission to help you explore each and every one of your options and give you a clear understanding of the best route forward.

Call us on 01752 922549 or book a call with our award-winning later life mortgage advisor to discuss your situation and find out what’s possible.