'Bank of Family' has a vital role in later life lending

This article was created in partnership with Family Building Society

When asked about the state of the later life lending market, Family Building Society’s Amar Mashru (pictured left) gets straight to the point: “It’s massive,” said the business development manager.

“The market is seeing a year-on-year an increase, with an uplift of £5 billion worth of lending requirements in Q2, which is up 17.5% on 2023,” he added. “And it’s only going to get bigger.”

With an aging population, cost of living crisis, and overall lifestyle changes compared to previous generations, lenders — namely those in the alternative space — are working hard to keep up with new realities.

“We are very much able to adapt and keep in line with the market,” Mashru said. “Rather than taking ‘the computer says no’ approach as other mainstream lenders might, we’re happy to have a discussion. I say to my brokers, paint me the picture — what’s the situation? It’s always worth a conversation.”

Applying a commonsense approach

Many of the clients that come to Family Building Society are those in their mid-to-late 60s or early 70s who have come to the end of their term with their high street lender or have gone from a two-earner household to one, whether because they suffered a bereavement or went through a “grey divorce” with a mortgage still outstanding. Thinking their only options are equity release or to downsize, it’s those with brokers who are well-versed in outside-the-box solutions who are empowered by choice.

“Alternative lenders like us make a way for those clients,” said Grace Bennett (pictured right), another of Family Building Society’s business development managers, pointing to interest-only lending, capital interest repayment mortgages, and reverse joint-borrower-sole-proprietor (JBSP) mortgages as solid options worth exploring.

“The way we look at later life clients differentiates us. We apply the common-sense approach and that’s why we see so much business in this area.”

Intergenerational lending solutions, such as the JBSP product which allows family members to support each other in the housing market, are rising in popularity and it’s no longer “the bank of mum and dad” but “the bank of family.” In 2024, gifting from the ‘Bank of Family’ increased to £9.2 billion, reflecting an increase in family member support. Adult children are also more often stepping up and utilising their income for affordability purposes via the reverse JBSP, allowing their parent or parents to remain in the family home for longer.

With no minimum income required and its market-leading approach of lending to borrowers up to 95 years of age on a capital repayment basis, there’s a lot of much-needed flexibility at Family Building Society. How the lender utilises income streams is also distinct from others in the market, considering up to 90% of investment and pension pot values — where other lenders tend to take 4 or 5% — and “playing around with the term to generate an annual income figure,” Mashru said. For example, if a client has a private pension worth £500,000, we can use to up 90% of that, so up to £450,000. Divided over a ten-year term, that’s £45,000 a year that we can count as income. If the £45,000 does not provide enough of a mortgage, Family Building Society can reduce the term, therefore increasing the amount of usable income for affordability. The usable percentage lowers to 80% if the term is less than ten years, but in this example 80% of £500,000 pension/investment value, divided by a term of five years results in a usable income of £80,000 for affordability. The lender also uses rental or passive income, such as a from a limited company where there’s a management structure in place.

With many older clients facing refinancing from low interest rates to considerably higher ones, mainstream lenders are reluctant to do product transfers for older borrowers, but Family Building Society has no such qualms. With manual underwriting, client’s cases are considered as a complete picture.

“Our approach is very different,” Mashru summed up. “Unlike a private bank, we don’t ask for assets under management, we simply do dry lending.”

Bennett agrees that Family Building Society is striving to support this segment of the market as it evolves, adding that the overall goal is to keep later-life lending as affordable as possible.

“We also don’t credit score, we credit check — again, coming back to that common-sense approach and lending where it fits for us, the broker, and the borrower.”

Later life lending advice for brokers

The Society encourages brokers to reach out to their dedicated local BDM, who in turn will work shoulder-to-shoulder with the underwriting team to progress the case. However, with intergenerational lending, it’s always a good starting point for brokers to recommend clients get independent legal advice. Family members stepping up has its risks and it’s critical to ensure they understand the implications of their involvement, such as legal rights to the property and financial commitments should the person in the home fail to pay. It’s also worth having a conversation with an accountant, or other professionals who can offer advice and ensure a smooth process for all stakeholders.

“There are elements that need to be ironed out by the client and it’s a great opportunity for the broker community to offer that value-add and point them in the right direction,” Mashru said.

For Bennett, it circles around to providing holistic advice. Brokers should familiarise themselves with lenders on the market that specialise in the later life space, be knowledgeable about the products — equity release is not the only option, she stressed — and help clients weigh out the solutions to find what best fits their circumstances.

“I can’t stress it enough — use your BDMs,” Bennett said. “Pick up the phone, bounce ideas off us, and let us use our common-sense approach to shape the inquiry to fit the client’s needs rather than tick-boxing the case to fit criteria. We just might have the perfect option.”