The lifestyles and financial needs of borrowers over the age of 50 have changed significantly over the last two decades, leading to a burgeoning later life lending market and improved access to tailored financial solutions for the UK’s older population.
Longer lifespans, increased living costs and higher house prices are some of the reasons driving these shifting dynamics, with a growing number of people in this demographic choosing to continue to work past the traditional age of retirement.
According to official Office for National Statistics (ONS) Labour Market figures, the number of workers aged 65 and over in the UK labour market has more than doubled in the last two decades, increasing from 5.2% in 2000 to 11.5% in 2023.
Many of these workers are predominantly self-employed or working part-time, but there’s also a growing number returning to full-time employment up to, and beyond, the state pension age.
What is behind the changing older demographic lifestyle?
There are multiple reasons for this shift. Sometimes it’s due to financial necessity and the need to supplement a private pension while staying on top of rising living costs. In others, a return to the workforce may simply be for social reasons and to boost physical and mental wellbeing.
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Although the later life lending market is continually evolving to cater to these borrowers’ ever-changing needs, it still remains a complex and often unexplored area of the mortgage market for many brokers.
Yet given the blurring of boundaries between this and the more traditional mortgage market, more and more brokers are discovering that it can no longer be considered a separate and siloed entity.
Earning while borrowing into retirement
One of the many questions we receive from brokers as they explore the later life lending sector relates to how income is assessed for older borrowers, particularly earned income that goes beyond the age of retirement.
This is often associated with older business owners who may have stepped away from their day-to-day jobs but continue to draw an income from a business they still own.
In a recent example, a broker approached us about a couple in their late 60s and early 70s who were looking to take out a mortgage. While they were no longer actively involved, they owned a fish and chip restaurant run by a manager, along with a team of waiting staff and a chef handling daily operations.
The way in which the business was established meant the couple still drew a salary and dividend from the restaurant but were no longer ‘working’ in the business. However, we were able to consider assessing the self-employed income further beyond the traditional retirement age based on the income generated from the business.
Similar affordability calculations can be used for later life borrowers in full-time or part-time employment, as all income earned past the age of 70 will be considered and there’s no upper age limit on applications.
In all cases, income can be assessed at four-and-a-half times up to the applicant’s retirement age, with affordability then calculated according to the balance of the mortgage. The applicant’s projected pensionable income is also used to ensure this multiple income still applies.
If the mortgage is still affordable based on four-and-a-half times pension income at the point of retirement, and they are taking the mortgage past the age of 80, then the borrower will be eligible for a lending in retirement product. If the applicant is already aged 80 or over, then income multiples of three-and-a-half times are still used to assess affordability.
Borrowing into retirement, and even beyond 80, is likely to become more common as individuals seek funding options to support their changing lifestyles. For brokers unfamiliar with this borrower segment, navigating available options and income assessments can be complex.
Seeking support from lenders offering flexible and practical solutions for the over-50s can help brokers secure the most suitable financing for their clients. And with demand set to rise going forward, it’s an area that brokers can ill afford to ignore.
