Connect recently ran a story on how mortgage stress is not just a plight for the young. Mortgagee older Australians are also being hit hard by rising interest rates with mounting cost of living pressures.  

Mortgage stress is seeing more and more seniors enter later life saddled with debt.  

In 2007-08, the Australian Bureau of Statistics reported that 8.1% of all households with a person aged 65 -74 were owners with a mortgage. The proportion has risen sharply since then. In 2019-20, the proportion of households with a person aged 65-74 with a mortgage was 13.4% - a 65% increase!  

Each year, more people retire with a mortgage. The growth in debt has dramatically outstripped real house price increases and income growth - highlighting the incidence of repayment risk and difficulties with paying the mortgage.  

Despite this, older people continue to seek out debt. However, lenders are increasingly resistant to taking older people onto their mortgage books or refinancing their existing debt.  

To shed some light on what lenders think of housing finance applicants aged 50-plus, Connect turned to the Australian financial comparison website, Canstar.

Older people can find it extremely difficult to access debt.  

Lenders want certainty and minimal or manageable risk. Unfortunately, older people are seen as risky and struggle to get good deals. Lenders are worried older borrowers won’t have sufficient assets to cover the debt, not sustain repayments, become incapacitated or pass away before paying off the loan.  

Older borrowers must demonstrate their ability to repay the loan over a shorter period. Canstar observes that to decline a loan based on age is discriminatory, and lenders can’t obviously do that. However, lenders are known to apply their legal obligation to comply with responsible lending guidelines, including that the borrower must be able to repay the loan.

Canstar advises that seniors demonstrate how they can cover a residual lump sum debt. Provided they can convince the lender that their plan is viable and they have the will to carry it through, they may be able to qualify for a loan.  

Downsizing is a viable option but carries risks for those who may need to refinance. The Canstar spokesman said lenders/refinancers need a solid deposit as assurance that a sufficient surplus could cover the purchase of the smaller property and meet the transaction costs.  

Borrowers must also demonstrate they are committed to sticking to the plan, “which can become problematic when non-monetary factors come into the equation.”  

Reverse mortgages are another option, not requiring repayment until the sale of the house. However, this product has tighter loan-to-value ratio requirements and can lead to a rundown in the borrower’s equity in the property. Getting expert financial advice is strongly advised.  

Canstar also warns that having adequate equity may not be enough. All borrowers must demonstrate a good credit record, the ability to repay the loan, a secure income and/or a dependable source of funds to clear the loan.