04 October 2017
There is no denying the UK has an ageing population. There are currently 37% of adults aged over 55 with this figure expected to rise to 44% by 2039. So, with this age group representing such a high proportion of society why are older borrowers being left behind when it comes to mortgage lending?
This is an issue facing not only today’s older generation, but younger generations too. A combination of lack of supply and high prices means people are now more likely to rent for longer before being able to buy and as a result, the scheduled term for one in three mortgages agreed today exceeds current state pension age.
Lenders may be reluctant to move into the older borrower market due to the perceived risks of lending to older borrowers. There may be reputational risks of lending to vulnerable customers, however these can be mitigated by providing good quality advice, stringent affordability checks and flexibility within products. Other risks can be managed by ensuring the adviser understands the needs and circumstances of the borrower, for example understanding how changes to their lifestyle may affect their pension or state benefits.
Research shows that building societies can be seen to be doing more to help older borrowers in comparison to high street lenders, however high street lenders have proved to be able to offer more competitive rates. Although a number of lenders now offer mortgages beyond age 85, many of these have other criteria in the background which are likely to restrict borrowers from actually achieving this, including retirement income restrictions and maximum loan amounts. This proves that increasing age limits alone isn’t enough to help older borrowers.
Consideration needs to be given to other aspects of lenders’ criteria to make lending into retirement easier to achieve. Lenders should reconsider their maximum loan sizes and LTV’s to allow older borrowers to borrow the funds they need where affordability in later life can be demonstrated. The number of lenders accepting sale of property as a suitable repayment vehicle for interest only mortgages has dropped in the last ten years, and for many older borrowers who are looking to downsize or move into other accommodation in their older age, an alternative to a capital and interest mortgage is welcomed. Building Societies are in a better position to offer these types of changes to older borrowers due to their common sense approach to underwriting and ability to judge each case on its own merits. However, lenders should be aware of the fine line between flexible products and irresponsible lending.
The added flexibility that would come from criteria reviews could also be beneficial to older ‘mortgage prisoners’ who cannot switch due to restrictions on age limits and maximum loan amounts.
Many regional building societies, including Tipton & Coseley Building Society, have specific products for older borrowers, but is there more can lenders do to help older borrowers?