Pension Income for Mortgage

Are “pension mortgages” available in the UK? Find out how you can get a mortgage while on a pension, depending on a number of factors.

What type of mortgage can I get with my pension income?

When looking to borrow into retirement there may be more options than you think, partly because some lenders are more flexible than others, and partly because those borrowing over the age of 55 can qualify for equityThe difference between the value of the property and the amo... release if there is enough equity in the property.

Depending on your circumstances and preferences, you could potentially take out one of the following mortgage types:

Traditional mortgage vs equity release

Traditional mainstream mortgages are possible to obtain with no maximum age, using 100% of the pension income, and certain lenders can consider loans up to 4-5x income, with certain adverse credit issues depending on your circumstances.

Equity release however, can offer many borrowers (looking to refinance their home to release capital) far more flexibility and greater scope, such as:

No monthly repayments

Borrowing with no income assessment

Borrowing far larger loans if traditional mortgages aren’t affordable

Borrowing with even more severe adverse credit (i.e. IVA, Bankruptcy, Repossessions etc. when perhaps traditional lenders may not lend)

This is made possible as the loan released to the borrower already has the interest and charges added to it at the point of assessment, and these are recouped by the lender when they assume control of the property (when the borrowers die), and as such if done in this way, there is no risk to the lender of default, as there are no repayments for the borrower to make!

Interest-only pension mortgage

Interest-only mortgages have the benefit of lower monthly repayments, however, you’ll still need a strategy to pay off the capital at the end of the loan period. This is called an interest-only mortgage repayment vehicle and can take the form of savings, investments, shares, bonds or the sale of another property.

If you’re looking to pay off your mortgage with your pension pot then yes, you may be able to do so. Some lenders are happy to accept the 25% tax-free lump sum you’re able to draw out of your pension when you retire.

So for instance, if your pension pot is worth £100k, you have the potential to borrow £25k on interest-only.

Speak to an expert about using pension income for mortgages

How will lenders assess me for a pension mortgage?

Every lender is different in what they do and don’t accept when it comes to a pension backed mortgage in retirement, and the good news is that there are several specialists happy to consider using a pension to pay off a mortgage under certain circumstances.

The key criteria lenders assess are:

What type of mortgage are you looking for?

Are you currently retired, or working but looking to borrow into retirement? If you’re currently working, when will you retire?

Your current age at the point of application

Your age at the end of the mortgage term

The type of pension income

How long has the pension income been paid?

Do you have any other income to support the application?

Other standard criteria such as overall affordability, loan to valueThe ratio of the mortgage amount to the value of the propert... (LTV), credit history, and property type

To establish the best lender to suit your circumstances, make an enquiry and we’ll match you with an expert who can discuss your options with you.

How much interest should I expect to pay on a pension mortgage?

Pension mortgage interest rates are the same as for anyone else. It essentially depends on your income, credit history and how much deposit you have.

All lenders are different, which is why you should talk to one of the advisors we work with. They have access to the whole market, not just a handful of lenders, so they should be able to find the best rates for you.

Will bad credit affect my application for a mortgage with pension income?

If you’re looking to take out a mortgage using your pension but have bad credit, there are bad credit mortgages available, depending on your circumstances.

These include:

Adverse credit overview

Little or no credit score mortgages

Mortgages with arrears

Mortgages with defaultsMissed payments on credit accounts, which can affect a borro...

A mortgage with County Court Judgements (CCJs)

Mortgages with an Individual voluntary arrangements(IVAs)

Debt Management Plan (DMP) Mortgages

Bankruptcy mortgage

Can I get a mortgage when already in retirement?

You can get a pension mortgage when you are retired, but it can be very different from borrowing before retirement.

If you only receive a pension as income, then it is usually the gross figure lenders will use to establish what you can afford to borrow.

Typically lenders offer between 3-4x gross incomeThe total income earned before any deductions, such as taxes... (so for £20k a year = £60-80k, although some can consider 5-6x in certain circumstances), but for those in retirement this can be reduced as often the maximum age limit means the maximum mortgage term is less than for someone in their 30s, for example.

Can I get a mortgage when working that stretches into retirement?

If you’re looking to borrow on a mortgage term that runs past your expected retirement age, the process can vary from lender to lender, generally depending on how close to retirement you are.

Many lenders will state that those borrowing into retirement at all will be required to evidence how they’ll afford the mortgage when working income ceases – demanding pension projection statements and all sorts.

Others are less picky and so long as the mortgage is affordable using working income, and there is a solid plan to repay, then fewer documentation is required.

The cut off for whether more evidence and documentation is needed is often if the application is within 10 years of the expected retirement date (for example, a 55 year old who plans to retire by 68 and borrow until 70, is 12 years from retirement and may not need as much evidence as a 59 year old in the same scenario).