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Mortgage with pension income

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 6, 2023

Fact Checked By:
David Nicholson - Finance Editor

Can I get a mortgage with a pension income?

Mortgage lenders can help you pay off your mortgage with your pension, however, this will depend on your eligibility, your age, and the type of mortgage you are looking for.

Let one of our expert mortgage brokers do the hard work for you and find the most suitable mortgage for you, and we will help with your mortgage application, discuss monthly repayments and any other questions you may have.

We have a few mortgage providers lending retirement interest-only mortgages and a standard interest-only mortgage, and each mortgage broker is part of the leading market financial advisers.

Click the link below to speak with an expert mortgage advisor who will then introduce you to specialist lenders whose criteria you meet.

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What kind of mortgage can I get with my retirement income?

There may be more options when looking for retirement loans than you think which is partly due to the flexibility of some lenders and partly because those over 55 can get equity release if they have enough equity.

You could take out one or more of these mortgage types depending on your financial situation and personal preferences:

  • Equity release vs traditional mortgage
  • Interest-only

Equity release vs traditional mortgage

You can get traditional mainstream mortgages with no maximum age limit and use 100% of your pension income. However, some lenders will consider loans up to 4-5x your income with some adverse credit issues, depending on your situation.

However, equity release can give many borrowers (looking to refinance their homes to release capital) more flexibility and greater scope.

  • No monthly payments
  • Borrowing without income assessment
  • If traditional mortgages are not affordable, you can borrow much larger amounts.
  • Borrowing with more severe adverse credit (i.e. IVA, Bankruptcy, Repossessions etc. – Traditional lenders might not be able to lend.)

This is possible because the loan is released to the borrower with the interest and charges already added at the assessment point. These are recouped when the lender assumes property control (when borrowers die) therefore, there is no risk of default for the lender as there are no repayments to be made by the borrower!

Retirement interest-only mortgage for pension income

While interest-only mortgages offer lower monthly payments, you will still need a plan to repay the capital at the end. Consequently, this interest-only mortgage repayment mechanism can be used to save, invest, share, bond, or sell another property.

You may be able to pay your mortgage off with your pension as many lenders will accept the 25% tax-free lump amount you can draw from your pension upon retirement.

For example, if you have a pension pot worth £100k, then you can borrow £25k interest-only.

What will the lenders think of me when I apply for a mortgage on a pension?

Each lender will have its own rules about what they accept and do not accept for a pension-backed mortgage in retirement.

The good news is that many specialists are willing to use a pension to help pay off a mortgage in certain circumstances.

These are the critical criteria that lenders consider when evaluating applicants:

  • What type of mortgage do you want?
  • Are you retired or working and looking to borrow money for retirement? When will you retire if you are still working?
  • Your age as of the date you apply
  • Your age at the close of the mortgage term
  • Type of pension income
  • What is the average length of time that pension income has been paid?
  • Are you able to provide income for the application?
  • Other criteria include overall affordability, loan-to-value (LTV), credit history and type of property.

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What interest rate should I expect to pay on my pension mortgage?

The interest rates for pension mortgages are the same as those charged to anyone else, depending on your income, credit history, and how much you deposit.

Every lender is different, and as a result, this is why it’s essential to talk with one of our mortgage brokers.

They can access the entire lending market, not just a few lenders like the high street; this allows them to find you the best rates with less strict rules.

Can bad credit impact my application for a mortgage that includes pension income?

You may be able to get a mortgage with your pension, but if you have a bad credit history, this could be more difficult.

There are bad-credit mortgages available depending on your situation.

These include:

  • Overview of adverse credit
  • Mortgages with low or no credit scores
  • Arrears mortgages
  • Mortgages with defaults
  • A mortgage with County Court Judgements
  • Mortgages with individual voluntary arrangements (IVAs)
  • Debt management plan (DMP) mortgages
  • Bankruptcy mortgage
  • Repossession mortgages

We have a mortgage advisor who can offer free mortgage advice to customers in any situation and the financial conduct authority regulates each mortgage broker.

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What if I’m already retired and want to get a mortgage?

A pension mortgage can be obtained after you retire, but it is not the same as borrowing money before retiring.

If your pension is not income, it will usually be the gross figure that lenders use to determine how much you can borrow.

Lenders typically offer 3-4x gross income. For example, £20k per year is £60-80k. However, some lenders can consider 5-6x.

For those who are in retirement, this may be possible as the maximum term for a mortgage can be less than it would for someone in their 30s.

Can I get a mortgage if my work stretches into retirement?

The process for borrowing on a mortgage term beyond your retirement age can vary between lenders, depending on where you are in retirement. Many lenders will tell you that anyone borrowing to retire must show how they will pay the mortgage.

This includes pension projection statements. Others are more flexible and require less documentation as long as the mortgage can be paid off with a steady income and mortgage repayments are set in place.

If the application is made within ten years of the expected retirement date, the cutoff for whether additional documentation and evidence are required is often 10.

For example, a 55-year-old who wants to retire at 68 and then borrow until 70 is 12 years away from retirement. In this scenario, they may not require as much evidence or documentation as a 59-year-old.

What does my age have to do with getting a mortgage for a pension?

Many lenders limit the age for application to a specific level, usually 60-65. However, some lenders specialise in mortgages for seniors with higher, or even no, maximum age limits.

They are more likely to become ill, and older borrowers may be considered at higher risk. They might be under more financial pressure to pay for care and accessibility improvements to their home.

Lenders are conscious that repossessing a pensioner’s home may be more challenging if they do not make the payments.

We know which mortgage lenders will approve a mortgage on pension income.

We also know which lenders are willing to lend to people with higher or lower age limits.

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How does my age at the time of clearing my mortgage impact lending decisions?

As with the maximum age at application above, for similar reasons, there are often limits for a borrower’s age at termination/repayment of the mortgage. Some lenders set this limit at retirement, while others cap it at 70-75. However, many lenders allow borrowing up to 100 years old if the mortgage is affordable.

What kind of pension income can you accept?

Lenders must determine if there is income available to pay the mortgage over the life of the pension mortgage. Pension income is about as stable and reliable as any income, provided it can be proven as such. Most lenders will accept 100% of the income but may only consider a smaller percentage depending on the risk.

You have many options for income to consider when applying for a mortgage.

  • Pension income for employees
  • State pension income
  • Private pension income
  • Widows pension income
  • Income from Armed Forces Pension
  • Retirement income from self-employed workers
  • Benefits of disability pension

Lenders may request evidence of these documents (if applicable):

  • Statements on pensions. These are like payslips. They show gross and net earnings, as well as tax paid.
  • A pension certificate/contract will be issued if you have recently retired.
  • Self-assessment documentation and business accounts (standard for people who get rental buy-to-let property income in retirement or have shares in a company they do not control – numbers used would be either share of net profits or salary and dividends depending on the lender and trading method).

What evidence do I need to prove that my pension income was paid?

Lenders will request monthly pay slips/pension statements and bank statements to prove that these payments were made. This allows them to assess the affordability of a mortgage. Some people require the most recent month, others three months and a few require 6.

Many borrowers are told to wait until they have enough money to apply. However, this is not true as many people don’t need any. Some will lend before or after retirement as long as they have sufficient documentation.

Are there other income sources that could be used to pay for the application?

A borrower who is seeking a mortgage and has a part-time or casual job can be considered by lenders. This depends on the length of the borrower’s plans, the amount they have worked there, and the ability to sustain the position (i.e. A bricklayer who is 75 years old may not be approved.)

If the lender is willing to lend borrowers up to 4x their income, this will allow someone with a pension income and a part-time job earning £5k per year to be eligible to borrow an additional £20k.


What types of property can I buy? Is it possible to buy a residence?

A mortgage for a property of traditional construction would be acceptable to most lenders. However, it must be deemed suitable and habitable by the lender.

However, if the property is located in a retirement community, there may be restrictions regarding who and when it can sell.

This would mean that traditional mortgage lenders wouldn’t lend to the property, so a specialist finance lender would be needed.

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How important is health when applying for a mortgage on a pension?

We are often asked whether ill-health can affect a UK pension mortgage approval. Generally, the answer is no. Lenders aren’t allowed to discriminate based on health. Borrowers would/should not be asked about their health.

Are there any insurance requirements for a mortgage on a pension?

Although it may be more costly, insurance is essential for anyone borrowing money to pay a mortgage on their pension.

This is especially true if two applicants have pension income that they need to make monthly payments. The pension doesn’t transfer if one of the applicants dies.

Transferring a pension to a partner who has died

It is difficult for the surviving partner, mainly if they have a higher pension. The rules and policies of the pension scheme will determine whether you are allowed to transfer your pension. Most pension plans will not transfer pensions to civil partners or spouses who are legally married.

For affordability assessments, can I add my pension to my self-employed income?

Yes. However, the same criteria apply in terms of income and affordability. Many obstacles must be overcome by those looking to obtain a self-employed mortgage. These include proof of income and trading history.

Talk to a mortgage expert regarding the use of pension income

Click the link below to discuss a retirement interest-only mortgage or any other mortgage options. Each mortgage broker will tailor your advice and introduce you to the best lender suitable to your needs so contact us today.

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