Major lender makes big change to its mortgage rules – and it can cut monthly payments for borrowers
ONE of the UK’s biggest lenders has amended its mortgage criteria in a move that can cut monthly repayments for struggling borrowers.
Experts say the change is a “welcome relief” for homeowners who are battling the highest mortgage rates in 15 years.
Halifax this week confirmed it has extended its maximum working age applicants can use earned income to 75 years old.
The age limit was previously 70 years old.
The change makes it easier for borrowers to extend their mortgage term, which can help lower monthly repayments.
Chris Sykes, technical director at broker Private Finance, said: “Halifax’s decision comes as a welcome relief for potential borrowers as it opens up more options, especially amidst the backdrop of rising mortgage rates.
“The move aligns with people working later in life meaning lenders are reassured borrowers can afford repayments at an older age.
“The change makes it easier for borrowers to extend their mortgage term to 30 years or higher into their late thirties.
“Hopefully, borrowers use this change as a temporary measure to cope with rising mortgage costs.
“Borrowers can explore options of overpayments or future remortgaging to pay down the mortgage faster and ease future financial pressures.”
Many of the high street’s big lenders, including Nationwide and NatWest already have a maximum age of 75.
But others including Barclays have a lower age of 70.
How does extending your mortgage term work?
When anyone takes out a mortgage, the loan is set for a certain period of time.
Traditionally, this has been around 25 years.
However, by making the term longer you draw out the time taken to repay the loan, meaning monthly repayments are lower.
Lenders may consider terms of up to 40 years depending on your age.
And the longer the term, the lower the monthly payment.
But you will usually still need to be expected to still be working by the time the mortgage term is due to end.
For example, lenders are unlikely to agree to a 30-year mortgage term if you are 60, as you will be 90 by the time the term finishes.
By pushing up their maximum mortgage working age, borrowers can get a longer term at a later age.
However, the downside of a longer mortgage term is that it will cost you more interest on the money borrowed.
For example, if you had a £150,000 mortgage at 4.5% for 25 years, your monthly repayments would be £833.
And over the term of the mortgage, factoring in interest payments, you’d repay £250,028.
If you had the same mortgage on a 35-year term, your monthly repayments would fall to £710, but the total amount you’d repay jumps to £298,003.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “Longer terms can reduce the monthly payments and bring down a homeowner’s total outgoing, but this will have an impact on the total amount of interest homeowners pay back putting homeowners in debt for longer.
“Extending the term may be useful as a short term cost-cutting solution, but the longer term impact could cost thousands.”
He added: “Paying off your mortgage over a longer term means that you won’t build up equity as quickly, equity that you could use towards your next property to reduce the size of your mortgage.”
How to get the best deal on your mortgage
Different mortgage providers have different lending criteria, with letting you borrow more than others.
There are also a big difference in costs between providers.
It means it’s important to look around the entire market to find the deal best for you.
A good independent broker can root out the best value mortgage for your circumstances.
In most cases, the larger the deposit you have the lower the rate you can get.
And a positive change to your credit score or a higher salary could also help you access better rates.
If you’re nearing the end of a fixed deal soon it might be worth looking for a new deal now.
You can lock in current deals up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
Each week, we speak to a first-time buyer as part of our My First Home series as they reveal how they managed to get on the ladder, including this buyer who bought with a 1% deposit.