Failure of retirement mortgages caused by gender pension gap

A retirement mortgage crisis may be brewing because baby boomer couples have a gender pension gap seven times the national average, research has found.

The difference between pension income for men and women stands at 270pc among retired couples applying for a mortgage, compared with a national average of 40pc, according to Responsible Life, an equity release firm.

This could severely limit the borrowing power for couples applying for retirement mortgages, the only deals available for borrowers beyond a certain age. Specialist retirement mortgages are lent on a “sole survivor” basis, meaning that when a couple takes a loan, both borrowers must be able to pay the monthly bill on their own if the other were to pass away.

Banks and building societies usually will not lend more than around four and a half times a borrower’s annual income. For retirees, this takes the form of guaranteed pension income.

The sole survivor rules mean that a retired couple applying for a mortgage, where the man has a guaranteed pension income of £ 33,000 and the woman £8,930, would only be eligible for a mortgage up to £40,185, rather than £ 188,685 if they applied for a traditional deal.

Steve Wilkie of Responsible Life said the disparity could explain the low uptake of “retirement interestonly” mortgages. These were designed to help retired interest-only borrowers coming to the end of their mortgage terms, and as an alternative to equity release loans, which can be expensive.

When retirement mortgages were launched three years ago, the financial watchdog predicted that around 21,000 would be sold annually by 2021. However, last year this newspaper disclosed that a total of just 2,291 had been issued.

Mr Wilkie said: “There is such a disparity in retirement income that couples who have led relatively comfortable lives suddenly find they have few options. Adoption of retirement interest-only mortgages has been disappointing for precisely this reason.”

The Pensions Policy Institute, a think-tank, found that there were 50pc more women than men approaching retirement without any private pension savings. The think-tank said women taking time away from work to look after family was historically the biggest contributor to the pension gap.