There’s no doubting that we’ve seen a fundamental shift in recent years.
Paul Lewis (pictured)is national development manager at Mansfield Building Society
An ageing population, new work practices, rises in house prices, increased commitments in later life - just some of the changes that make it increasingly likely that people need to carry a mortgage into later life, or that they might need to access equity in their homes.
There’s no doubting that we’ve seen a fundamental shift in recent years in this area – indeed you might suggest we’ve seen a sea-change in both society’s thinking about working in later life, how appropriate it is to have mortgage debt at that point, and the way lending is assessed and borrowing used.
If you wanted an idea about how significant a shift we are seeing then look at the latest research from the ONS on the number of people taking what might be described as ‘early retirement’. According to the statistics, 1.19 million people under 65 describe themselves as retired, which is the lowest figure recorded for 23 years.
Indeed, Aviva research argues that should this downward trend continue, then by 2035 the figure could actually reach zero, meaning that the notion of ‘early retirement’ becomes a financial and societal ‘Dodo’. It puts most of this fall down to the increase in the State pension age for women, which means the number of women below 65 years of age who now refer to themselves as ‘retired’ has dropped by 40% since 2010. Let’s not forget that the State pension age for both men and women is set to rise to 68 from 2039.
Therefore, the whole notion of what it means to be retired and at what age this ‘moniker’ becomes appropriate is being fundamentally altered. Working into your 60s and 70s, and even further, is no longer an outlier activity - indeed, we only need to look at the services we use, the shops we go into and the businesses that we rely on, to see that not only do people want to work for longer but employers are valuing the skills and experience that older workers bring.
This shift clearly changes the nature of mortgage borrowing and lending, and of course it also changes the nature of advising because not only do we have a rise in maximum age levels for what we might term ‘traditional mortgages’, but we also have lenders offering both normal interest-only products and Retirement Interest-Only (RIO) mortgages. Plus of course there are equity release options, some which also come with the ability to pay off interest over the course of the term.
As a lender active in the later life mortgage and RIO space, it’s important that we recognise borrowers’ income patterns, and what they are looking for from their mortgages. We’ve recently upped the maximum age for borrowers on our interest-only loans to 85, plus we’ve increased the maximum LTV to 70% on both our capital repayment and interest-only products.
That seems to chime with the shifting borrower landscape, and it opens up options for borrowing in later life that have been all too scarce over recent years. We think it’s also important to recognise how borrowers might want to exit their loans. Interest-only borrowers might well be able to pay the interest throughout the term but the capital will of course need to be paid off at some point. In the past, options such as selling the property in order to downsize were limited, but we’ve changed to acknowledge that this type of repayment strategy can be the one that a number of borrowers may wish to go for.
I think it’s also important to recognise that many people who sit atop the ‘family tree’ want to help those below them, particularly when it comes to getting their sons, daughters or grandchildren onto the housing ladder. Older borrowers increasingly want to access the equity they’ve built up in their properties to gift deposits to children/grandchildren who might otherwise struggle to purchase in this market. Again, the range of products which allow older borrowers to do this grows every week, helping advisers find a product that is both suitable and affordable.
All in all, we want to see choice increasing and, where appropriate, lenders recognising that the traditional norms of yester-year no longer apply to large numbers of people. Older borrowers are willing and able to take on or maintain this debt – as long as the mortgages are underwritten appropriately and advisers are able to prove their suitability and affordability, then we are undoubtedly going to see more of this type of lending in the years to come. That should be good news for both advisers and their later life clients.
