Using Pension Income to Support a Mortgage in Later Life

As we move into retirement, financial priorities often shift, and so do the ways we access and manage our income. For people over 50, pension income—whether from a private pension, workplace pension, or state pension—can be a valuable stream to support mortgage payments. Whether you’re already drawing from a pension or planning to receive one soon, you may wonder if these sources can help you secure or maintain a mortgage. The good news is that, with the right guidance, mortgage options remain open even if you’re already relying on your retirement income.

How Pension Income Can Help You Secure a Mortgage

Many lenders understand the unique needs of later-life borrowers and are increasingly flexible when it comes to income sources. Pension income, particularly from private pensions or defined benefit plans, is often seen as steady and predictable, providing a solid foundation for mortgage affordability assessments.

Types of Mortgages Available to Later-Life Borrowers

If you’re in receipt of pension income, a few mortgage options may be worth exploring:

1. Retirement Interest-Only (RIO) Mortgages: These mortgages allow you to make interest-only payments, with the loan amount being repaid when you sell the property or from your estate. RIO mortgages can be a good fit if you’re looking to keep monthly payments low while maintaining control over your home.
2. Lifetime Mortgages: A form of equity release, lifetime mortgages allow you to borrow against the value of your home without monthly repayments. The loan, plus any interest, is repaid from the sale of your home when you move into long-term care or pass away. Lifetime mortgages can be a viable option if you prefer not to make monthly payments.
3. Standard Repayment Mortgages: In some cases, lenders may consider a traditional mortgage with repayment terms, particularly if pension income and any other assets or income sources support affordability.

How Earned Income Can Impact Your Mortgage Options

For those still working in their 50s, 60s, or even 70s, lenders may also consider earned income as part of your affordability calculation. This is especially relevant for individuals in non-manual roles, where it is realistic to continue working into the later stages of life. Jobs such as consulting, administrative work, or roles in finance, law, or education often allow for continued employment without the physical demands of manual labor.

Lenders’ Approach to Earned Income Beyond Age 70

Several lenders have evolved their policies to account for the changing landscape of retirement. Some lenders, like Livemore, are open to considering earned income from primary and secondary employment up to age 80, provided the roles are sustainable. This approach benefits many professionals who plan to work part-time or on a consultancy basis in their later years, allowing them to leverage earned income to support their mortgage.

For example:

• Flexible Income Assessment: Lenders can look at both pension and earned income to create a clearer picture of your financial situation.
• Longer Mortgage Terms: Many lenders offer mortgage terms extending into later years, making repayments more manageable and aligning with projected income sources.

Additional Considerations for Later-Life Borrowers

1. Affordability Assessments: Lenders will evaluate the stability and consistency of your income. For pension income, they typically assess all forms, including private and state pensions, as long as they provide a steady income source. For earned income, lenders may ask for employment history or confirmation from your employer that continued employment is reasonable into later years.
2. Health and Lifestyle: Although lenders generally do not require a health assessment, it’s wise to consider your long-term health and lifestyle when committing to a mortgage in later life. Having a contingency plan, such as other sources of income or savings, can offer additional security.
3. Interest Rates and Product Choices: Be aware that rates for later-life lending products can vary. Fixed-rate options, either for two years or longer terms, may help provide peace of mind if you prefer stable payments over time. Consult with your mortgage adviser to find the right balance between rate and term based on your financial goals.
4. Joint Applications: If you’re applying with a partner, lenders will typically consider both incomes but also assess affordability based on the surviving partner’s income if one of you passes away. Planning for this eventuality can ensure your mortgage remains manageable for both of you.

Exploring Your Options with a Mortgage Adviser

A mortgage adviser can help you navigate the complexities of combining pension and earned income to secure a mortgage. They’ll assess your income sources, discuss realistic loan terms, and ensure you’re aware of all available options, including Retirement Interest-Only Mortgages, Lifetime Mortgages, and standard repayment mortgages.

Navigating mortgage options in later life can feel daunting, but with the right strategy, you can make the most of your pension and earned income, providing financial flexibility and peace of mind for years to come.

Ready to find out more? Visit our dedicated later life lending page to arrange your free 10 minute discovery call!