Jun 8 2016

Our ageing society

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We live in an ageing society, and that concept is starting to be recognised by mortgage lenders at last as the number of companies offering loans to people further into their retirement is increasing.

Nationwide has become the latest lender to offer mortgages to older people – extending the maximum age you can borrow with Britain’s biggest building society to 85. Halifax, Britain’s biggest mortgage lender, has raised its top age for borrowing to 80.

Even the Financial Conduct Authority (FCA) has suggested that more needs to be done to help older people with mortgage needs, with its Access to Financial Services in the UK paper outlining that more flexibility for older borrowers needs to be built into mortgage products from the outset.

This could include the ability to ‘roll up’ interest like you can with an equity release loan, and then the interest and capital being repaid when the borrower died or went into long-term care.

Of course, as it currently stands, the rules set by the FCA itself prevent this type of product innovation from happening thanks to the conduct of business rules being different for equity release loans and traditional mortgages. But the regulator is now consulting on possible changes to the rules that would allow this to happen.

In its Occasional Paper 17, the FCA quotes figures compiled by financial statisticians Moneyfacts which shows that 60 per cent of mortgage lenders have a blanket upper age limit, which is many cases is 65 – the traditional retirement age for men.

This is despite official figures showing it is expected the number of people over this age is anticipated to increase by around 1.1m by 2020. In fact, the report goes one stage further, adding that the fastest growing age group in the UK is for those aged over 85.

The problems getting a mortgage for older people can also be exacerbated because of their own personal situation, as those who are newly separated, divorced or widowed will also struggle to get a mortgage. But it is not plain sailing for younger people either, as house prices rise and it becomes harder to get onto the mortgage ladder until later in life.

Starting later will generally mean you want to finish paying your mortgage off later too, otherwise the dream of buying your own property will effectively become unaffordable.

Starting later will generally mean you want to finish paying your mortgage off later too

Whether you would want to continue having a mortgage after retirement is a moot point, and one that advisers will have to consider very carefully for those who come to them with this strategy in mind.

It can be hard telling someone that the house of their dreams is out of reach because of an arbitrary age at which they need to stop having a mortgage, but the alternative could be more costly.

For example, having a reduced income in retirement may not seem such a big deal when you are earning well in your 40s, but the reality would hit home hard, and it is easy to see that the adviser who suggested or even allowed this as a strategy would be in the firing line. But for many people who are either divorced later in life or get onto the property ladder later, it is a reality they need to face.

Those people who are already into their mid-60s and managed to get onto the property ladder earlier are in a relatively good position when it comes to the amount of property wealth they have. The current crop of over 65s have a significant amount of housing wealth – £874bn according to estimates from Key Retirement, but are still struggling in many cases with outstanding debts. Yet equity release accounts for just 1 per cent of overall mortgage advances according to PRA/FCA figures.

Even though these are considered to be the ‘luckier’ generation, where they have managed to increase their property wealth through ownership for a longer period – with 71 per cent of those aged over 65 owning their home outright according to the FCA report – they are still struggling with debt. Increasingly, they are using equity release to help them deal with those debts.

In fact, 40 per cent of customers taking a single lump-sum advance last year were intending to reduce debts, according to Key Retirement’s data, a third higher than the same period in 2014. While more than a quarter used some or all of that money to pay off unsecured borrowing on credit cards and loans, a fifth were using that money to clear outstanding mortgages on their property.

Rising house prices are helping to move this trend forwards but as we know, house prices will not continue to rise forever. In fact, the latest Land Registry figures showed that in England and Wales excluding Greater London, property prices were an average of -0.87 per cent down in the first quarter of this year compared to the last quarter of 2015.

When advisers manage to get themselves in front of borrowers they are able to suggest ways they might be able to deal with these issues. But just over one-third of remortgagers consulted brokers in March this year, according to figures from LMS – down from 46 per cent who consulted a broker at the start of the year.

This suggests that homeowners are feeling more confident in their ability to get the best deal and make the right choices, but given the number of older homeowners using equity release to clear their mortgage, that has to be questioned.

We need to do all we can to ensure homebuyers understand the value an adviser can add, and seek assistance rather than paying for it – literally – in the long run.

Alison Steed is a freelance journalist