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Ageing population means lenders need to innovate


Guy Anker looks at the growth in home loans to older customers and maps out how the market is likely to develop in future

A loosening of regulatory shackles and innovation from smaller lenders means older borrowers have more choice when looking for a mortgage in their later lives.

However, the acceleration is still in first gear as the increase in availability is mainly from building societies, with larger lenders failing to make a significant impact on the landscape.

Nevertheless, many brokers have lauded the advances made in 2018. Given that we live in an ageing society – the UK has 11.6 million people over 65 and by 2034 it is estimated that will rise to over 17 million – the new wave of products is likely to give hope to many who may otherwise have struggled to get a home loan.

Trinity Financial product and communications director Aaron Strutt says: “We went through a long period where lending to older borrowers was not a priority but there are certainly more lenders targeting them now.

“They know this is a growing part of the market and these borrowers need help. We regularly get enquiries from older borrowers who are coming to the end of their mortgage term and need to remortgage.”

Building Societies Association (BSA) policy adviser Charlie Blagbrough adds: “Over the past few years we have seen the mortgage market waking up to the realities of an ageing population.

“Housing wealth is increasingly concentrated in the hands of older people, and they are becoming a larger part of the population, so it makes perfect business sense for lenders to serve this demographic.

“Traditionally, attitudes have tended to favour paying off the mortgage before entering retirement, and while this is still good advice for some, others may want to draw on their housing wealth for any number of reasons.”

Figures from data provider Moneyfacts show that three years ago the average maximum age for mortgage holders across all lenders was 67. Today it is 78.

Housing wealth is increasingly concentrated in the hands of older people

While momentum has been gathering over a number of years, it grew in spring this year when the Financial Conduct Authority gave the green light to revive so-called retirement interest-only products.

It did so by considering the sale of a home as an acceptable repayment method. Such products had previously been outlawed, in effect, following the Mortgage Market Review in 2014.

Retirement interest-only products are simply interest-only mortgages but with no end date or one that is deep into a person’s later years.

Early adopters of such products this year include Hodge Lifetime; the Post Office; and Bath, Buckinghamshire, Tipton & Coseley and Vernon building societies.

Only last month, Mansfield Building Society launched such a product for those over 55 that also allows borrowers to take additional drawdowns. T

o some extent these products are similar to equity release but without the build-up of interest eating into the equity as it still has to be paid on a monthly basis, unlike equity release.

Mansfield head of products and savings Mike Taylor says: “We believe access to subsequent drawdowns will prove popular with borrowers. They will provide welcome relief to many who may have underestimated their financial needs in retirement.”

Another variation of retirement interest-only is when a borrower is allowed downsizing as a repayment vehicle, and Marsden Building Society launched such a product in the spring.

The BSA believes the retirement interest-only market will only grow further. “The FCA’s impact assessment of retirement interest-only mortgages estimates the market will grow to around £1.7bn by 2021,” says Blagbrough.

“However, it based this analysis on firms with significant interest-only back books, five of which said they were likely to offer retirement interest-only mortgages. Therefore the actual number is likely to be larger as other lenders enter the market.”

As well as offering new types of mortgages in 2018, many building societies have upped the maximum age they will lend to across their mortgage portfolio over the
previous few years.

BSA data reveals there are 34 societies that will now lend into or beyond a borrower’s 80s, up from 18 in 2015. Among that group, 16 have no upper age limit.

The increase in maximum age limits has naturally resulted in an older mortgage-holding population.

The BSA says the proportion of residential mortgages sold that will mature when the borrower is 65 or over has increased from 32 per cent in the first six months of 2015 to 41 per cent in the same period this year.

Yet many of the big lenders are far more restrictive on age. While some say they can sometimes extend a mortgage beyond their official maximum age, Nationwide quotes a cap of 85, Lloyds and Halifax go to 80, HSBC and Santander to 75, and Barclays and RBS to 70.

Some of those upper levels have increased in recent years, with Lloyds and Halifax extending their maximum
from 75 to 80 in June 2016, while a month later Nationwide upped its cap from 75 to 85.

Cherry Mortgage & Finance mortgage and finance broker Matthew Fleming-Duffy expects more flexibility from the major lenders: “It would be good to see more take-up from big lenders.

“We are living longer and the government is increasing the age at which the state pension can be claimed.

“This puts a significant burden on consumers to amass a small fortune to enable a comfortable retirement.

“While many cannot do this, many will be in a position where they have a sometimes significant amount of equity in their homes. As a society, we have to make a choice: either help those individuals to remain in their homes while providing access to finance or ask them to sell their homes and downsize, or go into care.”

Nationwide may soon answer the call for more flexibility from the high street. It unveiled plans to launch an interest-only mortgage for older borrowers in its annual report in May.

Chief executive Joe Garner said at the time: “Member needs change in later life. We plan to launch a retirement interest-only mortgage, giving people more choice in managing their finances as they get older.”

Some think there will be growing demand for borrowing into later life. Fleming-Duffy says: “The ghosts of poor product design and lack of adequate regulation from the early days of equity release seem to have been banished,and the general demand for later-life lending these days is increasing. There are many reasons, aside from spending. It could be for care, for home improvement, to pay off debt and for gifts to family members.

“Why should individuals with a large amount of equity in their homes be forced to sell to access that equity?” Another reason for the increase in demand, it is claimed, is people are buying their first homes later in life which pushes many of their financial moves back.

In November 2015 the BSA published its Lending into Retirement interim report. At the time it concluded that affordability pressures were delaying first-time buyer
purchases.This, along with rising life expectancy, means there will naturally be a greater demand for mortgages deeper into a person’s lifetime because people are starting later but are also borrowing for longer to spread costs.

That is at odds with the old ‘norm’. Take the average maximum mortgage age of 67 in 2015 and then consider that with the typical 25-year mortgage length – a borrower hit by an upper limit of 67 would have to apply by the time they were 42.

While that is well above the average age of a first-time buyer – in their early 30s – many FTBs may wait till deep into their 40s to move further up the housing ladder which would have made it difficult to buy a larger home at a maximum age of 67. The raising of age caps will therefore aid such homeowners. The BSA report stated: “FTBs face not only the prospect of buying later but, for many, borrowing longer is an increasing necessity. A concerted effort is needed from all with an interest in ensuring that older borrowers are properly served by the mortgage market into the

Many older people also want to be able to borrow to stay in their homes, say, when they have come to the end of an interest-only mortgage but cannot pay off the debt.
London & Country director David Hollingworth says: “Some borrowers face interest-only shortfalls without any other means to clear their debt. Extending the life of the lending may be necessary as long as it remains affordable.”

Marsden conducted research in August into the later life lending market and found a key concern among brokers’ clients was the ability to stay in their homes. It also found many use a later life mortgage to help their children or grandchildren get on to the property ladder. It would be wrong to discuss later life mortgage lending
without also considering equity release. While equity releases comes in different forms, the principle behind it is similar to retirement interest-only deals, though with the latter a borrower pays off interest as they go along which ultimately reduces costs.

Of course, equity release may be more suitable for clients who cannot afford that monthly commitment. Equity release lending has grown over recent years, which is unsurprising in the context of the later life mortgage growth, given they rely on many of the same triggers. The Equity Release Council reported in March that the number of new customers taking out equity release plans in 2017 was almost 10,000 more than in the previous year. It said at the time that equity release was helping more
than twice as many new customers as it was five years ago, while it added that more new plans were agreed in the second half of 2017 than in the whole of 2012.

Many retirees’ homes are worth as much or more than their pensions

One question mark against later life mortgage lending, as opposed to equity release, is whether it is sensible given people’s incomes in that age bracket may be lower.
Hollingworth says: “Although income for many will drop post-retirement that does not necessarily mean it is not adequate to support some borrowing.

“Lenders are looking at whether downsizing to repay the mortgage is a plausible approach, and retirement interest-only removes the repayment timeline altogether.
“Joint borrowers can expect lenders to be interested in the ability of a surviving borrower being able to continue to meet payments so that the mortgage is sustainable in future too.”

With more demand from borrowers and more availability from lenders, the message
to brokers from some is that later life lending could become a growth market for them. However, experts believe it needs to be seen in the context of wider financial planning, meaning later life borrowing decisions need to be weighed up against other important financial factors in retirement. This issue was raised in a report published in August by the Intermediary Mortgage Lenders Association on the later life lending market.

Imla executive director Kate Davies says: “Our report finds that many retirees’ homes are worth as much or more than their pensions, and both elements need to be considered as part of a wider retirement plan.”

Yet, as Davies states, this creates challenges for advisers who may be experts in just one area – pensions, investments or mortgages. They may not have the qualifications
or permissions required to advise on them all. “Changing demographics and socio-economic pressures mean it’s likely later life lending will become a significant
growth area,” says Davies.

“As more retirees seek to stay in their homes or unlock equity, innovation will drive lending forward and make it a bigger component of retirement financial planning.”
Blagbrough adds: “With an ageing population, changes to working lives and ever-increasing house prices, a significant increase in lending to older borrowers seems inevitable.”



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