What's missing with later life lending?

With people generally living longer than the generations who came before them, there’s been a greater emphasis on how we can best enjoy our so-called golden years – and much of this has centred on later life lending.

The benefits of unlocking the property wealth in your home have particularly gained attention – and while many have long considered equity release to be the go-to option for the over 55s, other solutions such as standard residential mortgages for later life, as well as retirement interest-only (RIO) and lifetime mortgages have also come to the fore.

Yet, a new report from the trade association UK Finance raises concerns for the later life lending market, with data showing an overall slump in business in Q2.

Some 32,990 new loans were advanced to older borrowers, down 8.34% year on year. The value of this lending was £5 billion, which was down 17.5% compared with the same quarter a year previously. Furthermore, 5,610 new lifetime mortgages were advanced in Q2, a reduction of 16.9 % year on year, with a value of £470 million - 6% lower than the same quarter in 2023.

More encouragingly, 326 retirement interest only mortgages were taken out by the over 55s, up 23%, from Q2 2023. The value of this lending was £30 million, which was up 15.4% on the same time a year ago.

So, what accounts for the mixed fortunes of later life lending in this quarter, and is there a need for older consumers and their advisers to wise up?

Mortgage broker Kerry Nash is a director of Marble Financial Planning, an AR of Rosemount Financial Solutions (IFA). She believes more education is needed for potential borrowers.

“Almost every single client I speak to about later life lending has a misconception about it,” said Nash (pictured left). “Later life lending is certainly a missed opportunity for older clients because it can open up so many options for someone who would perhaps view themselves as asset rich and cash poor, and could make a real difference to someone’s life.”

She noted: “Historically, later life lending was loosely regulated and most people can remember horror stories of people who ended up with their estate owing far more money than what was initially borrowed or worse still, not actually owning their home anymore, and all of this was without anyone’s knowledge. The industry is so different now. It is heavily regulated - quite rightly.”

How have interest rates impacted later life lending?

Mortgage and protection adviser Paul McKay – owner of Homeloan Express – believes that interest rates have all impacted the later life market, and he has a roll-call of prime suspects to blame…

“Since Truss, Putin and Andrew Bailey had their devastating effect on the market, the rates got to their highest eye watering levels of above 9%,” he said. “This does put a lot of cautious, older borrowers off when added to the uncertainty of the markets and the change of government has also spooked borrowers, I believe. I have also found that the initial borrowing has significantly dropped with some asking for as low as £10k-£15k now.”

McKay noted that swap rates were improving and lifetime mortgage rates have improved.

“The lowest rate of 5.48% is still higher than we could get pre-Truss and COVID,” he said.  “Loan to values have been improved by the lenders too with some products offering up to 52%. This is a good indicator of long term recovery in my opinion.”

For Darren Johncock, later life lending director at mortgage brokerage firm LDN Finance, a greater awareness of areas such as inheritance planning, gifting and supplementing income is key.

“A fundamental issue that needs addressing is the requirement for better education surrounding the topic, so that clients can improve their understanding of new later life products, rather than the taboo equity release products that were previously available,” said Johncock (pictured centre).

“Later life lending products are often seen as a ‘product of last resort’, whereas it should form part of any holistic mortgage advice for older clients because it can offer financial freedom. In order to address the education need, more competent specialist later life lending advisers are needed to fill the gap.”

Read more: Are big banks failing older borrowers?

How aware are older borrowers of their lending options?

Simon Webb (pictured right), managing director of capital markets and finance at LiveMore – a lender for borrowers aged from 50 to 90+, commented: “This decline is particularly worrying considering our ageing population. It is clear from these figures that many are unaware of their eligibility and options. For lenders, this is a crucial moment to reassess how we can innovate and adapt to meet the evolving needs of an ageing population, ensuring they are not left in a financially vulnerable position.”

While acknowledging that over the short-term, the value and volume of lifetime mortgages have decreased, Paul Glynn, CEO of Air - the platform for later life lending professionals – noted that both RIO and other later life borrowing options are effectively supplementing this dip. The market is developing, with a wider array of product options, and is only likely to grow further, he said.

“This shows how important it is for advisers to be having comprehensive conversations,” said Glynn (pictured right). “Advisers have the chance to seize an opportunity to grow their business in this market, offering access to all product options not just a limited selection; indeed, Consumer Duty measures demand that advisers not just be knowledgeable about these options but provide the advice themselves or signpost to those that can.”

Ben Waugh, managing director at lender more2life, commented: “The understanding of later life lending products and their benefits is improving, but there’s still a need for greater education. If advisers deal with clients who fall into the eligible age bracket, it’s crucial to consider later life lending products alongside other options – otherwise how can there be certainty of the best customer outcome?”

Meanwhile, Sanjay Gadhia, head of sales at Standard Life Home Finance, said: “As mortgage terms stretch beyond 35 years, there is an emerging demographic of lifetime mortgage customers who may choose to leverage later-life lending to manage their mortgage debt in retirement. Everyone’s situation is different, but if a customer is concerned about their finances, it is always worth exploring their options in the later-life market with a specialist financial adviser.”

Jess Rushton, head of business development, at financial review site Smart Money People, said that lifetime lenders have shown consistent improvement in broker satisfaction in the last two years, narrowing the gap to just 0.2% behind the top-performing sector of building societies for H1 24.

“However, the high interest rates and fees remain a point of frustration, likely influenced by the broader economic challenges of the last 12 months,” she commented. “Despite these concerns, brokers acknowledge and appreciate the innovation and flexibility that lenders in the later life sector continue to offer."

Martyn Stones, director of technical services at Countrywide Surveying Services commented: “Our work with both lenders and funders in the later life lending market, along with Equity Release Council, has clearly shown us that the potential for the sector remains immense.”