Halifax has introduced a new measure imposing a maximum age limit of 70 for homebuyers, signalling a shift towards more cautious mortgage lending practices. This move entails a reduction in the maximum age at which borrowers can indicate their retirement intentions from 75 to 70, effectively disqualifying individuals above this threshold from securing loans. The adjustment has the potential to compel numerous borrowers to shorten the duration of their mortgage terms in the future, consequently leading to higher monthly mortgage payments.
The impact of this change is expected to be particularly pronounced among individuals in their 40s and 50s who aim to extend the length of their loans. Darryl Dhoffer, an advisor at The Mortgage Expert, expressed concerns, stating, "Halifax appears to be tightening the screws on the very borrowers who need them the most." This policy alteration follows the bank's decision last summer to extend the working-age limit to 75, prompting questions about the rationale behind this reversal.
Mortgage lenders typically align the duration of loans with borrowers' intended working lifespan, often requesting details about anticipated retirement age before extending offers. Borrowing beyond this predetermined limit necessitates thorough assessments to ascertain whether future pension income can cover repayment obligations. Halifax's recent decision translates to a reduction in the maximum borrowing period by five years for many individuals, with exceptions applying to those seeking to expand their mortgage size or possessing weaker credit profiles.
The trend of elongating mortgage terms has gained traction among buyers seeking to alleviate the burden of high property prices and escalating interest rates. UK Finance data indicates that nearly a quarter of first-time buyers are opting for mortgage durations exceeding 35 years. While elongating the loan term reduces initial expenses, it results in higher interest payments over time. This development coincides with a significant surge in interest rates, spurred by the Bank of England's decision to raise its base rate from 0.1% in December 2021 to 5.25% presently.
A spokesperson from Halifax justified the policy change as part of routine lending criteria reviews aimed at ensuring responsible lending practices across diverse customer segments. However, some industry experts, such as David Hollingworth from brokerage London and Country Mortgages, speculate that Halifax's move reflects a strategy to mitigate lending risks associated with retirement without completely withdrawing from this market segment.