The generational game appears to be difficult for all types of generations at the moment
Chris Prior was formerly manager, sales and distribution at Bridgewater Equity Release
“People try to put us down, talking ’bout my generation.”
Back in the sixties, when Roger Daltrey and The Who were singing ‘My Generation’ there was no doubting who he was referring to. It was the youth, and they were being stamped upon by ‘the man’ or more specifically, the generations above them.
Coming up to date, and bringing this round to the world of financial services and borrowing money in particular, you would be hard-pressed I believe to work out which is the most put-upon generation at present. Of course, the younger generation have plenty of ammunition to suggest they are in a much worse position than the last two generations when it comes to being able to secure their own home and the finance they need to get onto the housing ladder.
This is very far from a golden age for first-time buyers, in fact the combination of factors that line up against today’s first-timer are many and varied; indeed, they seem to be added to on a monthly basis – deposit requirements, lower wages, lack of housing supply, rising house prices, mortgage restrictions, affordability requirements, regulatory action, product availability, the list goes on. It is perhaps therefore unsurprising that the average age of a first-time buyer continues to climb towards 40 and that those who have ambitions about purchasing believe achieving it could be beyond them.
In terms of securing the mortgage to buy a first home, first-time buyers (who you might think have plenty of time to pay off their loan) are increasingly worried about the length of term and where that will take them. Recent results from a Building Societies Association (BSA) survey suggested that around half of 25-34 year olds believe they may need a mortgage that lasts into their retirement. And over a quarter think they are likely to struggle getting a mortgage into retirement because of factors such as their credit history, income level or age counting against them.
You might wonder how it all reached this point, and be scratching your heads at a system which appears to be working against, not for, home borrowing. Take for instance, the generation above, perhaps those in their 40s and 50s who are also facing the same sort of lending into retirement predicament, especially if they want a longer-term. How, in these days of post-MMR affordability assessments, can they refinance in order to make their moves or simply get off a less than competitive rate?
And what about the early 50-year olds, perhaps with interest-only mortgages coming to an end and not enough money in their repayment vehicles to pay off their capital? How are they to be viewed by the mainstream lending community? Will they be able to secure the finance they need? They certainly can’t access equity release because they are too young – will their lenders look to deliver specific ‘lifetime mortgage’ type products in order to fulfil a need and, to all intents and purposes, stave off that much-talked about ‘timebomb’.
And then we have the ‘new generation’ of retirees who can drawdown their entire pension pots in cash – should their provider allow them – who are flanked by those already in retirement and are waiting to see if they will be afforded the same freedom to cash-in their existing annuity policies. How will they make the move from work to retirement and be able to meet all the myriad of responsibilities that come with being retired today such as paying off debt, meeting living expenses, covering care needs, etc. How will the market develop to attend to their growing needs? Will equity release be the key product in order to help them meet and get over all these challenges?
Therefore, the generational game appears to be difficult for all types of generations at the moment and this is a marketplace which is undoubtedly going to change beyond all recognition in the years ahead. Consider for a moment the fact that George Osborne recently announced that £1bn have already been drawn down from pension pots – in just over two months. What will be done with this cash? How will it impact on our economy today and in the future?
One thing does remain clear – advisers and the overwhelming need for advice are going to be a service in significant demand and needs to be at the heart of any approach to meeting these many generational issues. Those firms who position themselves well should reap the rewards from a period and situation which, unfortunately, looks like it could be in flux for a long time to come.
