If you are over the age of 50 and looking to take out a home loan, you may need to provide more detail about your future financial position than you thought.
It is no longer enough to have a stable career and a steady income.
In 2011, the National Consumer Credit Protection Act implemented changes to the responsible lending requirements and borrowers over the age of 50 are now being required to demonstrate an ‘exit strategy’ or a plan for what will happen with the loan for when they retire.
As part of the responsible lending requirements, lenders cannot approve a loan that may be unsuitable down the track, in that the borrowers don’t have the income in retirement to meet the repayments or don’t have the funds to pay it out without selling the property.
This is particularly relevant for owner occupied home loans as requiring a borrower to sell their own home is not seen as a valid exit strategy. So as well as providing evidence of your income, expenses, employment, assets and liabilities, you will also need to show how you will meet your home loan repayments in retirement or pay out a home loan if your income in retirement will be minimal.
Having assets like superannuation, shares or other investment properties which can be sold can form part of the exit strategy. This can help show that there will be enough excess funds to pay out the remaining loan amount. Alternatively these assets may provide income in the form of interest, dividends or rent that can be used to add to the retirement income to meet the loan repayments.
Many Australians believe it is becoming more difficult for those over 50 to obtain a home loan due to these new requirements. So, if you are over the age of 50 and want to apply for a home loan, give yourself the best chance of being approved and speak with a Broker before applying. They will be able to give you a checklist of what information you need to provide.
The exit strategy that you will need to provide will vary based on your income, assets and plans for retirement. Some examples of an exit strategy may include:
• Sale of investment property or other assets
• Income or payout from superannuation
• Downsize the property if it is realistic that this will be possible
• Investment or other income that will continue into retirement
Although different lenders may have slightly different borrowing requirements, the fact is that if you cannot demonstrate a reasonable exit strategy or the ability to pay the loan into retirement, you may find it difficult to obtain a home loan.
When it comes to assessing a home loan application, lenders need to be able to see that you can meet the repayments ongoing or pay out the home loan. So, although you cannot be declined for a home loan based solely on your age, it is one factor that can affect your ability to the approved for a loan.