Next chapter lending is key if we are serious about home ownership

The mortgage industry has always been fond of labels. We create categories to help define markets, identify customers and explain propositions. Yet sometimes those labels outlive their usefulness. Later life lending is one such example.

For years, lending into retirement has been treated as a specialist area of the market. A niche proposition designed for a relatively small group of borrowers whose circumstances sit outside the mainstream. That framing may once have been accurate, but it no longer reflects the reality of the housing market or the people trying to navigate it.

Recent research from Experian highlighted that more than half of first-time buyers expect to be paying their mortgage into retirement¹. That statistic should fundamentally change how the industry thinks about lending beyond a traditional retirement age. If the majority of people entering home ownership today already anticipate carrying mortgage debt into later life, then lending into retirement is no longer a later life issue. It is a home ownership necessity.

The challenge facing first-time buyers is well understood. People are purchasing later in life than previous generations. They are spending longer in education, renting for longer, saving larger deposits and often entering the housing market at a point where house prices remain stretched relative to earnings. Even where affordability has improved, the reality is that many borrowers need mortgage terms of thirty-five or even forty years to make monthly repayments manageable.

The maths is straightforward. A borrower purchasing their first property at thirty-five on a forty-year term could still have a mortgage at seventy-five. Increasingly, that is not an unusual scenario. It is becoming normal.

Yet much of the mortgage market continues to operate according to assumptions built for a different era. Many lending policies were designed when borrowers typically retired at sixty-five, enjoyed the certainty of defined benefit pension schemes and expected to clear their mortgage well before leaving the workforce. Today's borrowers are living very different lives.

Many people continue working beyond traditional retirement age, whether through employment, consultancy or self-employment. Others move gradually into retirement, combining earned income with pension drawdown, investments and other sources of wealth. Defined contribution pensions have replaced final salary schemes for much of the workforce, creating greater flexibility but also requiring lenders to think differently about affordability and income assessment.

Against that backdrop, the idea that a mortgage should simply stop at a predetermined age begins to look increasingly disconnected from reality. The question should never be whether a borrower has reached a particular birthday. The question should be whether they have a credible and sustainable means of repaying the debt.

That is why Vida's approach to Next Chapter Lending matters. Whether it’s lending for first homes, next homes or later-life plans, all need to be considered differently.

The changes introduced in our Next Chapter lending proposition are not about taking greater risk or lowering standards. They are about aligning lending criteria with the way people actually live and work. Extending the maximum age at the end of term, properly incorporating pension income into affordability assessments and creating sensible pathways for lending into retirement are all examples of a lender recognising that the customer journey does not suddenly end at sixty-five. This is not just about borrowers approaching retirement. It is equally relevant to those entering the market today.

If more than half of first-time buyers already expect their mortgage to extend into retirement, then the industry's ability to assess affordability across multiple life stages becomes critical.

A first-time buyer taking a thirty-five or forty-year mortgage today needs confidence that the lender understands what their income profile might look like in twenty, thirty or forty years' time. 

Equally, brokers need criteria that allow them to place cases with confidence rather than being forced into unnecessary compromises because of arbitrary age limits.

There is also a wider housing market question here. Governments, regulators and lenders spend considerable time discussing affordability, housing supply and the barriers facing first-time buyers. All of these issues are important. But there is little value in helping more people onto the housing ladder if the mortgage market itself is unable to support the realities of modern home ownership.

The truth is that longer mortgage terms are already becoming part of the solution to affordability challenges. For many borrowers, spreading repayments over a longer period is the difference between owning a home and remaining in the rental sector. If that is the case, lenders must be prepared to support customers throughout the entirety of those longer borrowing journeys.

That does not mean abandoning responsible lending principles. It means assessing customers properly, understanding future income streams, considering retirement planning and making informed lending decisions based on evidence rather than assumptions. Good lending has always been about understanding risk. What has changed is the nature of the customer.

Vida has built its reputation by understanding borrowers whose circumstances do not always fit traditional lending models, whether that is the self-employed, those with historic credit blips or customers with more complex income structures.

Next Chapter Lending is a natural extension of that philosophy. It recognises that modern borrowers require modern underwriting and that responsible lending can only be achieved when criteria reflects real life rather than outdated expectations.

The phrase later life lending suggests a specialist solution for a minority of customers. The reality is very different.

As the Financial Reporter research demonstrates, lending into retirement is increasingly becoming part of the expected home ownership journey for millions of people. The market can either adapt to that reality or continue applying rules designed for a world that no longer exists.

Next Chapter Lending is not simply about serving older borrowers. It is about ensuring that home ownership remains achievable, sustainable and relevant for entire generations of homeowners. If we are serious about supporting home ownership in the decades ahead, that is exactly the kind of thinking the market needs.

Sources

¹Experian