Banks apply stricter criteria to post-retirement income

In the coming months, several banks will adjust their conditions for mortgage applications when someone is (nearly) retired. Nothing will change for existing mortgages.
However, those who wish to move, adjust their mortgage, or take out a new mortgage in the future may encounter these new conditions. We have summarized the most important changes for you.

Monthly housing costs
A mortgage is a loan. Interest is paid on the borrowed amount, and the loan is repaid over the term. Together, interest and repayment constitute a significant portion of the monthly housing costs.
Before a bank grants a mortgage, it is legally required to assess whether the costs remain affordable throughout the entire term. Therefore, the bank looks not only at the current financial situation but also at the future.

Post-retirement income
Income can change significantly after retirement. Sometimes it remains roughly the same or even increases slightly. In practice, however, post-retirement income is often lower than pre-retirement income. This can have consequences for the affordability of a mortgage. For example, monthly costs may be perfectly manageable with current income. If income drops substantially after retirement, those same costs may become less affordable in the future.

This is why banks are increasingly scrutinizing post-retirement income for new mortgage applications.

What do the stricter rules mean?
The stricter assessment can affect the possibilities when taking out a mortgage. Banks are implementing measures such as the following:

• The loan must be structured so that the remaining mortgage balance at the time the oldest partner reaches age 85 does not exceed a certain percentage of the current property value. This percentage varies by bank. While one bank may assume a maximum of 50%, another may apply a limit of 70%.
• If the retirement date falls within the mortgage term (often 30 years), the bank may request additional information regarding pension income.
• If the mortgage is taken out 15 years or less before the state pension age, the bank may request a more detailed insight into all monthly financial obligations.
• Pension built up within one’s own company or holding company is no longer taken into account by some banks when assessing a mortgage application.
• With certain pension schemes, the payout is higher in the first ten years than thereafter. Due to stricter acceptance conditions, this can also influence the possibilities for suitable financing.

The exact conditions vary by bank. However, the trend is clear: post-retirement income is playing an increasingly important role in the assessment of a new mortgage.

No consequences for current mortgages
Those who already have a mortgage and are retiring in the coming years do not need to worry. The new conditions only apply to new loans. However, the new rules may play a role in the event of a significant change to the mortgage. This includes, for example, purchasing a different home or refinancing the mortgage with another bank. The new conditions may also apply in the case of a divorce.

Plans for the future? We are here to help
Have you read about these changes in the media and are you wondering what they mean for your situation? Or do you have plans to change your living situation in the coming years and are uncertain about what is financially possible?

We would be happy to advise you.
As advisors, we look beyond today’s situation. We map out what post-retirement income will look like and which housing costs are appropriate. This creates a clear picture of the financial possibilities, allowing for timely consideration of which choices align with your future plans.

Plans for the future? Please feel free to contact us. We would be happy to look at the possibilities together. You can easily schedule a mortgage consultation yourself via this link.