30 August 2022

Mortgages for life

By Platform, part of The Co-operative Bank

The life cycle of borrowers has shifted, and the mortgage industry must move with it, says Sarah Line, Head of National Accounts, Platform part of The Co-operative Bank.

Remember when most of your clients were married in their twenties, repaid their mortgage in their fifties and got their carriage clock, pipe and slippers at 65?

Unless you’ve been broking for a very long time, probably not.

Today’s clients are an altogether more diverse bunch and they span a vast age range – you might feasibly have three generations on your books.

Borrowers buy their first home later, borrow over longer terms and often work into their seventies and beyond. Property wealth now plays an important role in funding later life as well as helping the next generation to buy.

Homeownership shift

The government’s English Housing Survey found that almost three-quarters of over-65s in England owned their home outright by 2018/2019, a huge rise from 56% in 1993.

According to equity release adviser Key, this age group has more than £1 trillion-worth of unmortgaged housing equity - wealth that is increasingly being released to fund retirement, long-term care and perhaps a deposit for their children to get onto the property ladder.

At the same time, the number of owner-occupiers set to pay a mortgage beyond the traditional retirement age of 65 is rising, as we buy later in life and borrow on terms of 30+ years.

Throw into the mix this year’s bulge of 40,000 interest-only mortgage terms coming to an end, with some borrowers set for a shortfall, and the need for mortgage solutions beyond the age of 65 is clear.

Lending beyond retirement

Later life lending falls into two categories. The first covers standard mortgages now available to older borrowers. The second is made up of mortgages without an agreed term, including lifetime mortgages and retirement interest-only loans (RIOs), that are repaid on the sale of the property when the borrower dies.

The former has seen a huge shift in recent years, with many lenders increasing the maximum age on application and of completion of the mortgage term. According to Moneyfacts, the number of mortgages permitted to end when borrowers are aged between 80 and 84 increased dramatically from zero in 2014 to 1,078 products in 2019. There are even more available (1,822) permitted to run until the age of 75 to 79.  Last year, Platform increased its maximum age at the end of the term to 75.

The latter - equity release - has quadrupled in size in the last decade, from £945.97m (2009) to £3.92bn (2019), according to the Equity Release Council.

Whether or not you advise on equity release, it has become a mainstream sector of mortgage lending and one that brokers will increasingly be asked about by clients. So, either plan to get your qualifications and permissions, or get a good referral arrangement in place.

Priced out

It’s not just older borrower’s needs that are changing.

At the other end of the lending journey, younger people are less likely to own their own home than in the past and more likely to be renting. And it’s not just the very young.

Only half of people in their mid-30s to mid-40s had a mortgage in 2017, compared with two-thirds 20 years earlier, according to the English Housing Survey.

Rising house prices have pushed up the average age of first-time buyers to 32 according to UK Finance (pdf: 174kb) and they now borrow an average £172,126.

Affordability is routinely boosted in one of three ways. Firstly, the Help to Buy scheme, which provides interest-free loans on newly-built homes. Secondly, mortgage terms have lengthened - more than 40% of first-time buyers take out a mortgage with a term of 30 years or more (pdf: 936kb).

Finally, the Bank of Mum and Dad has swelled in size, making it effectively the 11th largest UK lender, according to research previously published by Legal & General. Of course, this has a direct link with the growth in later life lending, as many support their children by releasing property wealth.

Inter-generational ties have become stronger than ever, and lenders have responded with a range of products to help families, from guarantor-style mortgages to ‘joint borrower single title’ arrangements.

Square peg, round hole

Not everyone has the same smooth journey from first-time buyer to lifetime mortgage borrower. People can relocate, divorce, get made redundant, or fall into debt.

Life gets in the way, and a significant minority of clients don’t fit neatly into the automated systems and tight criteria of the mainstream mortgage market.

This includes the five million self-employed, those with previous credit difficulties or non-standard income. A competitive specialist lending sector serves these clients, who are more likely than most to need the help of a broker.

When you look back at the cases you did last year, what proportion would you describe as vanilla?

Adapt our skills

Brokers need to be able to help their clients at every stage of their mortgage journey, which means constantly adapting to their changing needs.

Luckily, brokers are experts at coping with change. From the credit crunch to MMR, brokers have thrived under challenging circumstances.

As the needs of clients continue to shift, it’s important we all acquire the skills needed to support them to ensure our intermediary business continues to thrive.

The Co-operative Bank p.l.c. is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (No. 121885). The Co-operative Bank, Platform, smile and Britannia are trading names of The Co-operative Bank p.l.c., P.O. Box 101, 1 Balloon Street, Manchester M60 4EP. Registered in England and Wales No.990937. Credit facilities are provided by The Co-operative Bank p.l.c. and are subject to status and our lending policy. The Bank reserves the right to decline any application for an account or credit facility. The Co-operative Bank p.l.c. subscribes to the Standards of Lending Practice which are monitored by the Lending Standards Board.

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