Can I Remortgage on a Pension Income?

How Lenders Assess Pension Income

Lenders accept various types of pension income for mortgage affordability purposes. The most commonly accepted sources include:

• State Pension — the full new State Pension is £221.20 per week (2024/25 rate) and is accepted by most lenders as stable, guaranteed income
• Defined benefit (final salary) pensions — these provide a guaranteed annual income and are viewed very favourably by lenders
• Defined contribution pension drawdown — lenders assess the sustainability of your drawdown by looking at the size of your pension pot and the rate at which you are withdrawing
• Annuity income — regular, guaranteed payments from an annuity are treated similarly to employment income

If you are not yet drawing your pension but plan to retire before the mortgage term ends, lenders will need to assess your projected pension income. This typically requires a pension statement showing the expected income at your planned retirement date.

Maximum Age Limits and Mortgage Terms

Every lender has a maximum age at which the mortgage must be fully repaid. This varies considerably across the market:

• Many mainstream lenders set a maximum age of 70 to 75 at the end of the mortgage term
• Some building societies and specialist lenders allow terms extending to age 80 or 85
• A small number of lenders have no maximum age limit, provided you can demonstrate affordability for the full term

The maximum age limit affects the length of term available to you, which in turn affects your monthly payments. A shorter term means higher monthly payments, so it is important to find a lender whose age limit gives you a long enough term to keep payments manageable.

If you are already retired and seeking a 15-year mortgage, for example, you need a lender whose maximum age allows the mortgage to extend at least 15 years beyond your current age.

Pension Drawdown and Affordability

If your pension income comes from drawdown rather than a guaranteed annuity or defined benefit scheme, lenders need to assess whether your pension pot can sustain the withdrawals for the full mortgage term. This involves a sustainability assessment.

Lenders typically require that your pension pot is large enough to support your current level of drawdown for the remaining mortgage term plus a buffer. If you are drawing down at a rate that would exhaust your pot before the mortgage is repaid, the lender may reduce the income figure they use or decline the application.

Providing up-to-date pension statements showing your pot value, current withdrawal rate, and investment performance helps the lender carry out this assessment. Some lenders also want to see the asset allocation of your pension investments to assess the risk profile.

Strategies for Older Borrowers

If you are remortgaging in retirement, a few strategies can improve your options:

• Consider a shorter term if you can afford the higher payments — this keeps you within more lenders' age limits and reduces the total interest paid
• Combine income sources — State Pension, private pension, investment income, and any part-time earnings can all be included in your application
• Reduce the mortgage balance if possible — making a lump sum payment when you remortgage reduces the amount you need to borrow and improves your LTV ratio

Retirement interest-only (RIO) mortgages are another option if a repayment mortgage is not affordable. With a RIO mortgage, you pay only the interest each month, and the capital is repaid when you sell the property, move into long-term care, or pass away. These products are regulated by the FCA and must follow specific rules to protect borrowers.

A whole-of-market broker experienced with later-life lending can help you navigate the options available. The market for older borrowers has expanded significantly in recent years, and there are now more products available than ever before.