The mortgage market is shifting. We’re now talking about later life lending so frequently that it’s becoming less specialist and more mainstream.
Changes in the economic landscape and in the attitudes and habits of buyers, along with decisions made by previous generations of homeowners, have all served to create a situation where more people now need to borrow into retirement.
It’s an area of our business that has been gathering pace in recent months to the extent that volumes for our retirement mortgages doubled between May and June.
The pressure on borrowers has come from all angles. We’re living longer and need more money to fund even basic retirement costs, while a squeeze in finances means people might also have a shortfall in pension savings.
Wages have failed to keep up with rising interest rates and house prices, leading more buyers and movers to take out ultra-long mortgage terms just to achieve affordability.
At the same time, the average age of the first-time buyer has risen, and when they do buy, their parents have had to find large sums of cash to help them. The latest English Housing Survey showed more than a third of recent first-time buyers had a gift or loan from family or friends.
On top of all that are the older generations of borrowers who took out interest-only and endowment mortgages which are now maturing and also need refinancing.
Borrowing into retirement becoming a necessity
This melting pot of issues means that borrowing into retirement now extends far beyond a nice-to-have lifestyle choice because rates are low; it’s increasingly becoming a necessity.
In some cases, it could present the best way out of a financial problem, particularly where people are finding themselves asset-rich but cash poor.
A number of the retirement mortgage applications we’ve received recently have been for debt consolidation.
However, it’s not just those struggling financially who are looking to leverage equity in their homes.
The changing nature of the housing market has meant that even when pensioners want to downsize, they still might find themselves facing a cash shortfall.
We recently supported a customer who wanted to move closer to family following the death of his wife. Despite the fact that 75-year-old Robert was moving to a smaller property, it was in a more affluent area, so the sale of his house still wouldn’t cover the cost entirely. It gave him a decent deposit, but he needed a mortgage of around £100,000.
He briefly considered an interest-only mortgage, but was keen to reduce the size of his debt, leading him to choose one of our retirement mortgages on a repayment basis.
This highlights another factor. Not everyone above or approaching retirement age wants an equity release or retirement interest-only (RIO) product. They might be working way beyond state pension age, or have other income streams, and simply want to carry on paying off a mortgage as normal.
Not everyone wants to downsize either. And as the case study shows, even when you do physically downsize, moving to a more affluent area, or to a bungalow, or retiring to the countryside or coast, could all involve a property with a higher price tag.
Variety of options needed
There have been so many economic, social and lifestyle changes in recent years that will result in later life lending becoming increasingly common. As an industry, we need to make sure we’re properly catering for people’s increasingly varied situations, while being aware of the potential challenges and vulnerabilities they might face in later life.
It means all intermediaries really need to have one eye on their clients’ futures and the options that might be available to them post-retirement.
It’s important to strike that balance between helping someone achieve their dreams and goals, while protecting their financial security for the long term.
