30 August 2022

Meeting the needs of an ageing population

By Family Building Society

People are living and working for longer, causing a shift in later life needs and the means to fund lifestyles in older age.

According to the Office for National Statistics (ONS), the ageing population – the growing proportion of the older people in society due to longer life expectancy – is set to increase from 1.7 million people in 2020 to 3.1 million in 2045, and rise from 2.5% of the UK’s population to 4.3%.

Additionally, figures from the ONS also showed that a person aged 65 in 2020 can expect to live on average for a further 19.7 years for males and 22 years for females, meaning an expected lifespan of 84 years for men and 87 for women. This is projected to rise to an additional 21.9 years for males and 24.1 years for females who will be aged 65 years in 2045.

Although the state pension age is under review and primed to increase to 68, an ageing population means people may need more than an earned income or pension to sustain themselves in later life.

A survey conducted by Which? last year found a single retired person would need an income of £19,000 a year for a comfortable lifestyle while a couple would need £26,000.

What does all of this mean?

This means there is a potentially growing demographic of people who may need to tap into different areas of the financial services market to create or supplement income when they’re older.

Which is where the later life mortgage market can step in.

Research conducted by later life mortgage providers and trade associations shows that many older people use mortgage finance for holidays, purchase a buy-to-let property or to pay for high-ticket consumer goods such as a car.

A study done by the London School of Economics on behalf of Family Building Society showed that in 2020, the largest proportion of later life borrowers used mortgage finance to pay for improvements to their homes or gardens, closely followed by respondents who used funds to help children and grandchildren get onto the property ladder.

Anecdotally, Darren Deacon, head of intermediary sales at Family Building Society, has witnessed a desire for intergenerational lending, saying: “I do see an increase in those clients freeing money up for not just children but grandchildren for gifts. Using their pension funds to either enhance affordability or to evidence the longer-term affordability in retirement.”

This suggests that large sums are often needed for various purposes.

This was partially evident in the record £4.4bn of property wealth taken out by equity release borrowers in 2021 and the £28.1bn lent to later life customers in the same year, which was the highest value since 2014.

Help is needed

Unfortunately, despite the huge borrowing potential clearly seen in the older population, it is not always easy for them to secure the finance they might need.

Restrictive mortgage criteria and product choice can hinder the options available within the mortgage market.

This is where the Family Building Society can help.

We see many cases from high street customers who are in their mid to late 60s but are unable to secure mortgage finance, as their current lender will not extend their term to the age they need.

We are able to lend up to the age of 89 on owner-occupier interest-only and buy-to-let mortgages, and up to 95 on owner-occupier repayment mortgages.

We will manually underwrite each case to avoid ‘computer says no’ scenarios meaning we listen to each clients’ story to assess each application on a case-by-case basis. There is also no credit scoring.

Many of these borrowers who are turned away from the high street have decent incomes too.

Family Building Society will take into account earned income up to the age of 70 (or age 75 for professionals), as well as pension pots, fixed pensions, or a limited company director’s salary and dividends. 

Additionally, we can accept rental and investment income. We will also consider lending up to 80% loan to value (LTV).

In terms of product options, we offer retirement interest-only mortgages to borrowers aged 65 and older.

Parents in retirement can assist their children’s borrowing potential too, using our joint mortgage sole owner (JMSO) mortgage. Additionally, older borrowers can obtain help from their adult children through the reverse option of the same product. This can be particularly beneficial for supporting family members as they won’t be liable for stamp duty on the second home.

These are some of the ways Family Building Society is prepared to help older borrowers with options other lenders may not.

As a broker, your role is to make sure you engage with these clients to determine which options will provide the best outcomes and meet the needs of older borrowers.

Later Life Lending statistics and trends (pdf: 1.7mb)

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