Your IndustryJun 16 2016

Pressure to increase mortgage age limits

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Pressure to increase mortgage age limits

While the Mortgage Market Review resulted in some lenders restricted lending to borrowers where the term took them past the age of 65, some continued to allow loans into later life.

Dale Jannels, managing director of All Types of Mortgages, says his business has had relationships with a number of lenders, especially building societies, that have allowed unlimited maximum age for mortgages for some time.

What is new is high street lenders are hitting the press headlines now as they know how many people are coming to the end of ‘normal retirement age’, but who are carrying on working and still have a large debt to repay.

Mr Jannels says: “If the loan-to-value is good and affordability fits, people are working longer, living longer and therefore should be able to have a mortgage for longer if required.”

Paul Winter, chief executive of the Ipswich Building Society, says before launching his retirement mortgage programme the lender conducted research which found on average one in five (18 per cent) people expect to be still paying off their mortgage in retirement.

A third (33 per cent) of those polled told Ipswich they were concerned about the availability of mortgage products in the future when they are older, while just over a third (35 per cent) believed they would end up paying a higher mortgage rate in the future as a result of their age.

Mr Winter says it is in response to the changing needs of borrowers, that many lenders are joining Ipswich and beginning to increase the maximum age limit on mortgage.

There is an increasing pressure on all elements of society regarding the funding of house purchase Martin Reynolds

But Martin Reynolds, chief executive of SimplyBiz Mortgages, says another reason why lenders are increasing the maximum age limit on mortgages is increased pressure from government/regulators for fairness in lending to older clients.

He says this pressure, combined with a realisation that some pension income is still secure and has not been washed away with pension freedom, is what has prompted some lenders to increase the maximum age limit now.

Mr Reynolds says: “Given that the maximum retirement ages were removed a few years ago, there is no ‘cut off’ and there is an increase in life expectancy, hence the likelihood that an individual will live to the end of the loan term (average life expectancy is more than 85 for both genders).

“There is an increasing pressure on all elements of society regarding the funding of house purchase and the resultant pressure on those in older age groups to release equity from their home to help younger age groups.”

Charlie Blagbrough, mortgage policy officer of the Building Societies Association, agrees there are a whole range of reasons why lenders are increasing the maximum age limit on mortgages now.

He says while it seems obvious it is important to remember a mortgage was originally designed as something most people would take out at the beginning of their career and pay off over the course of their working life before reaching retirement.

Mr Blagbrough says that isn’t the world we live in any more.

“For a start, there is no longer a default retirement age and more people are choosing to work part-time to supplement their income,” he says.

“We have an ageing population and many people, especially those on defined benefit pension schemes, are also reaching retirement with a safe income for life.

“These are people who may want or need a mortgage extending into retirement and can afford the repayments, so we don’t want credit-worthy customers to be underserved.”

At the other end of the equation, we have acute housing affordability pressures across all tenures.

The BSA carried out research last year that showed half of 25 to 34-year-olds thought they would need a mortgage lasting into retirement.

Mr Blagbrough says: “Many first-time buyers are having to wait until their thirties or forties before they can raise a big enough deposit.

“Interest-only mortgages are not really an option for them so, for many, the only way to make the repayments more affordable is to spread them out over a longer term.

“If the first mortgage is already taking the borrower close to or into retirement, then this is even more the case for young families and those moving up the ladder.

“It is easy to see how they might start getting close to the maximum age limit – so this is about lenders providing more flexibility.”