Retirees who want to buy a home face strict barriers from mortgage lenders. Many lenders reject older applicants outright. Renier Kriek, Managing Director of Sentinel Homes, says the reason is simple. Banks see retirees as higher risk.
Wealth and assets do help, but many older buyers fall short. Here is what holds them back and what options they can explore.
The 75 Rule
Most lenders follow one rule. A home loan must be paid off before the borrower turns 75. This means you need to apply before 55 to get a full home loan term.
A retiree of 65 will only qualify for a 10-year loan. That shorter term pushes monthly instalments up sharply.
“You end up paying around 75 percent more per month than someone in their forties,” says Kriek.
Affordability Checks
Banks also avoid lending to applicants with only pension income. They want proof of stable, active, or passive income. This ensures you can afford the higher instalments associated with a shorter loan term.
Plan Early
Older buyers struggle to get approval. You need to secure a home loan before 50 if you want affordable terms.
“You have to think about how you will service the debt when you no longer want to or cannot work,” Kriek says.
Your Options
There are several ways to fund a home before or during retirement. Each has benefits and drawbacks.
• Rent: Many landlords avoid renting to retirees. If a tenant cannot pay, eviction takes time, and the law offers strong protection to elderly tenants.
• Use pension income: You can use part of your pension to fund a deposit and instalments. This reduces your long-term financial security and affects your lifestyle. It also has tax consequences.
• Cash out your pension: The new two-pot system limits withdrawals to the savings pot. Withdrawals are taxed at your highest marginal rate. You lose up to 45 percent.
• Pension-backed loan: Some funds offer this product. If you default, you risk your primary source of retirement income.
• Buy a life right: It costs less than buying a retirement home. You do not own the property. It is not part of your estate. You must pay cash because banks do not fund these purchases.
• Alternative home loan providers: Instalment sale models, such as those offered by Sentinel Homes, give access to property without upfront ownership. Retirees may need to pay a higher deposit and show diverse income streams.
Think Ahead
Planning for retirement housing cannot wait. You may reach a point where your current home is too expensive or impractical. You may need to move closer to support and care.
“You must prepare for that stage of life, including where you will live and how you will fund the purchase,” says Kriek. “Mortgage lenders will not help once you retire.”
