How is Family Building Society responding to the growing later life market?

This article was provided by Family Building Society

As befitting its name, Family Building Society serves a wide range of ages – among them customers who make up the later life market. As the building society’s head of intermediary sales, Darren Deacon (pictured left) explained, those people’s needs are evolving.

“They are not ready to think, ‘right that’s it, mortgage paid, I’ve got my pipe and slippers and I'll sit here.’ They want to live their lives, they often want to enjoy the wealth of their house,” Deacon noted.

“In an ageing population, people want choices. For my parents’ generation, and certainly my grandparents’ generation, it would be very much about getting a mortgage paid off within a relatively short time, certainly by the age of sixty or sixty-five. The reality now is that people either don't want to do that because they want to do other things for themselves, or for their family.”

He continued: “Their situations are getting more and more complicated and there may be more unusual family setups. Our strapline is ‘one size doesn’t fit all’ and we look to support those cases which fall between the cracks. Rather than focussing simply on black and white cases, we look for the grey and that’s how we differentiate ourselves from a high street lender. By and large, they will credit score and they're looking for fast track, quick turnover applications. Not everybody fits within that box.”

TRAPPED

Deacon elaborated that some people may feel trapped on interest-only mortgages, which date back as far the 1980s, in some cases – he suggested - due to the endowment miss-selling.

In later years and in other circumstances where borrowers took out an interest-only mortgage, those mortgages are now coming to an end. Some high street lenders may refuse to extend them or to offer another product and want their money back. A broker who’s not fully aware may take them straight down the equity release route, but there might be other options. 

“For example, they might have earned, passive or investment income, that we can take into account and use to keep them in their property, or certainly to the point where there might then be other options, say in five or ten years, which they can explore. Equity release might be the right thing for them, or downsizing, maybe even another interest-only product. I can’t promise that we’re going to be able to do everything, but it does not automatically need to be a cliff edge situation.”

CASE

Family Building Society highlighted the case of a couple who were coming to the end of their existing interest-only mortgage and didn’t have the funds to pay off the capital. Aged 65 and 63, they had problems finding lenders who would offer a mortgage to suit their circumstances, at their time of life. They had experienced problems with their previous lender, "either through their incompetence or what seemed like wilful obstruction,” they said.

Family Building Society offers mortgages up to age 95, so their age wasn’t an issue. Even so, the couple wisely sought the advice of a local mortgage broker about other options. The broker agreed that the Society offered the best solution – much to the couple’s delight. “We were very impressed from our first contact, through the entire application process,” they enthused.

Deacon also pointed to another case of two customers, a couple aged in their seventies, who wanted to build a £80,000 extension on their £420,000 property, and gift £140,000 to their two sons. Family Building Society was able to take into account their state pensions and the husband’s pension pot, to help them achieve the £220,000 funds they needed.

“High street lenders put barriers in the way when assessing interest-only such as minimum equity, minimum income and minimum property value. We don’t apply any of these as we can look at each case individually,” Deacon observed.  “We do have a pure interest-only stress when we're talking about a mortgage term of 10 years or less. If we go over 10 years, then yes, we’ll stress on a capital and repayment basis. Do we apply death stress as per RIO (retirement interest-only mortgages)? The answer is no. We don't underwrite it as a RIO mortgage. We can take an application from an 89-year-old on an interest-only, so our interest-only business goes deep into retirement.

“Family Building Society does offer part and part as well – a middle-ground between repayment and interest-only mortgages, where you pay off some of your mortgage as you go, but not all of it.  Interest-only might not be accessible even with ourselves, if there is a small equity in the property. It gives the broker another option and that's the skill of the Business Development Manager (BDM) to be able to spot the opportunity, understand how we can use our criteria to help, and be able to make suggestions to the broker to hopefully get the correct result.”

He continued: “The message is that we take a sensible approach to equity and offer real flexibility on applications. We will look at anyone, on any income, as long as it stacks up for what they need. A high street lender will say, ‘yes, we do interest-only, but there’s often a high bar for that customer to reach before they'll even entertain a discussion.”

GROWTH

“The later life market is certainly growing”, Deacon considered.

“There’s a big demand for it, though a lot of education is needed within the sector,” he suggested. “The sector itself arguably had a poor reputation in the past for maybe having a few sharks circling around in it, particularly with equity release, and there was a sense of customers being vulnerable.”

“Customers and even mortgage advisers themselves need to better understand the available options today for lending into later life, and how we carefully scrutinise applications. We underwrite with a very keen eye on vulnerability, though we do that with any application, so we wouldn't restrict that just to later life borrowing, we would do that at any age.

“There’s a duty on the broker, especially as a whole of market broker, to at least have the awareness that there are lenders such as ourselves out there who can help.”

Amar Mashru (pictured right), a BDM at Family Building Society concurred.

“The way that we assess an older borrower and their requirements is very different,” Mashru reasoned. “It is focused on them, supporting them with their overall goals. There are a lot of things which affect individuals’ financial circumstances. We've come through COVID, we've now got a cost-of-living crisis. It's continuous, and, personally, I see that continuing for the next 12 to 24 months. So, I feel manual underwriting is extremely valuable in this market, as it gives us the ability to have open discussions with brokers, to try to find a sensible way of assessing and supporting their client with their goals.”

“There are a lot of lenders who say they manually underwrite, but we genuinely manual underwrite because we look at everything and we look at all angles in trying to find a way to best support a client, from the beginning, right the way through their case. I get a lot of inquiries from brokers who may not be sure if we can do something and I say ‘let's sit down, get a piece of paper and brainstorm this. Let's see how we can support and help. And that happens regularly, that's what we do.”

He continued: “It is a very big market, though I feel it is undeserved. I feel we're in the right space, doing what we do, in the way we do it, to help and support.”

RELATIONSHIP

He believed too that the Family Building Society’s relationship with intermediaries was crucial.

“The relationship is by far the biggest thing for us,” Mashru said. “If we didn't have that relationship, if we didn't have introducers, then we wouldn't even be here today. The vast majority of what we do comes via a broker. We can educate and we can work together to get a solution that benefits their clients. “

“As a BDM, it's my number one priority to be available for brokers and not just during your typical hours either. There will be occasions where at five thirty, six o’clock, the phone will ring. Having been a broker myself, for five and a half years in my early career, I understand.”

Mashru was clear that borrowers and their brokers should always keep an open mind.

“I get inquiries from clients who are with high street lenders, who have interest-only mortgages and have already retired,” he shared. “They say, ‘I can't renew it, can you help, can you support me?’ Yes, I reply, absolutely. I feel those levels of inquiries will only increase.”

Mashru concluded: “Never assume that it’s a ‘no’ until you've spoken to us. Pick up the phone, give us a call, let’s talk through your case. Having a fresh pair of eyes running over your inquiry can provide some fresh light on it.”