Middle-age mortgage? Forget it

Mortgage broker John Bolton added it became much more difficult to borrow money as people got older. Photo / Thinkstock

Banks shy away from older would-be borrowers with only pension prospects.

Middle-aged home buyers face being locked out of the property market because banks are worried they are too old to pay off their mortgage before they retire.

The Herald on Sunday has been told that New Zealand's main banks had "unofficial policies" on how they would approach lending to those who decided to buy a first home later in their lives, or who were starting again after a marriage split.

An industry expert said that included a stance to turn away many potential borrowers who would have to rely on the pension before the repayment term of the loan was up.

The Human Rights Commission confirmed that in the two years since December 2012, it had received five complaints of alleged unlawful discrimination on the grounds of age, where the claim had been that they were too old for certain mortgage or lending terms.

A commission spokesman said it was unable to provide the outcome of the complaints.

Banking expert Claire Matthews said banks would never admit to imposing an age limit because it was illegal to discriminate on the basis of age.

But she said unofficially they would have one because of fears borrowers would not be able to meet the payments.

"They've got to ask about income source. "The bank wants to be repaid and not to have to sell the house to do it," she said.

Mortgage broker John Bolton added it became much more difficult to borrow money as people got older, especially if they did not have a lot of equity.

"If you're 55 and you've split up and have $300,000 equity each, that's fine to buy a $600,000 house. Even at 55, banks will lend against that. But if you're 55 and you don't have much deposit, the bank would start to struggle with that."

He said banks would usually test a borrower's ability to pay on a shorter-duration loan. "If you're borrowing $400,000 on a $600,000 house and you're 55 they will say, 'Can you pay it off over 15 years'? If you can they'll back you. If you can't, they'll be starting to worry."

At an interest rate of 6 per cent, a $400,000 loan would cost $1556 a fortnight to pay off in 15 years, compared to $1106 for 30 years, the most common term taken by first-home buyers.

Of the major banks surveyed by the Herald on Sunday, ASB and ANZ said the most important factor in their decision to lend was the applicant's ability to service the loan.

A spokesman for BNZ added: "While there is no requirement for lending to be repaid before the age of 65, this is the generally accepted age where bankers must satisfy themselves that our customers can continue to service loan repayments should their income reduce substantially."

Kiwibank spokesman Bruce Thompson said the bank would make an assessment based on a person's ability to service a debt for the term of the loan, taking into account the likelihood of their circumstances changing.

He said the bank would not like the idea of putting someone who was on a pension in a situation where they would have a high level of debt servicing for the rest of their lives.

Lending to someone for an investment property would be different, he said.

"In a situation like that if they were to get into any form of hardship they can sell the property and generally that would cover their debt. But if it's an owner-occupier, and the person is approaching retirement or is retired, we need to have certainty of their ability to service the debt for the duration of the loan."

The bank would ask whether someone expected to have similar income in 10 years if they were looking at a 25-year loan. "That can be a reality check."