More hoops for older buyers

The strategy To get a home loan if I'm in my 50s.

The strategy To get a home loan if I'm in my 50s.

Is that likely to be a problem? A mortgage adviser at Smartline, Karen le Comte, says age is becoming a real issue with most lenders. Borrowers in their 50s, or even late 40s, are being asked to show how they will fund their loan past retirement. She says they are increasingly being required to demonstrate an exit strategy from their home and investment loans to get a loan approved and the once widely used strategy of simply selling the property to pay out the remaining debt is no longer acceptable. Lenders want to see there is a comfortable level of extra money to ensure the debt can be paid out.

She says lenders are also being more strict with the loans granted to older borrowers, reducing the loan term from 25 or 30 years to 15 or 20 to ensure it is paid out.

Has something changed? The tougher stance is being attributed to the responsible lending requirements of the National Credit Code, which came into effect earlier this year.

Le Comte says lenders now ask for evidence of how the borrower will pay out the loan on retirement or death, using the code to explain their decision. The code requires lenders to ensure borrowers can afford to service their loans.

Le Comte says lenders are being especially tough with older borrowers seeking home loans. Investment loans are also subject to the code but she says they are less of a problem.

She says when borrowers want to withdraw equity from their home to invest, lenders are also being more vigilant. Borrowers are now more likely to be required to provide a statement from their accountant, or recommendation from a financial planner, to prove the equity is being withdrawn for genuine investment purposes.

How do I ensure I won't run into problems? Le Comte says it is important to tick all the right boxes when you apply for the loan. She says borrowers should be able to demonstrate they have a stable history of employment and ensure they have recent copies of their superannuation statements to show they have money they can access in retirement and have the cash flow to make contributions now.

She says low exposure to consumer debt such as credit cards and personal loans also goes down well. "It's nothing for people in that age group to have $50,000 owing on credit cards," she says. "But if you want to apply for a mortgage you should get it down."

Le Comte says lenders look at the number of credit inquiries that have been made about borrowers. "If you have four or five credit cards, plus store accounts and so on, you'll generally have an active credit file and banks that use credit scoring tend to be opposed to that," she says. "Keep those sorts of debts down unless they're a necessity. Even a phone call to ask about credit can prompt an inquiry, though borrowers often don't realise this when they agree to it."

She says lenders expect older borrowers to have money in the bank and possessions that reflect their age and earning history.

If you don't have a strategy for paying off the loan before retirement, you will need to show you have money in other assets, such as super or shares, to pay out the debt.

Le Comte says older borrowers need to be aware of the stricter requirements and get advice before applying for a loan. "If you've already been declined for mortgage insurance, for example, it will make it much harder to apply for the loan with another lender."

Twitter: @sampsonsmh

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