Mortgages  

Lenders wake up to late-life loans

Lenders wake up to late-life loans

At last banks are extending the age up until which they will lend, providing much needed help for those already in properties who need to remortgage, release equity or extend their term – and for those trying to get onto the property ladder later in life.

This move is long overdue after the banks pulled back so heavily in the aftermath of the Mortgage Market Review (MMR). The FCA has stated on several occasions that it was never its intention for later-life lending to dry up in the way that it did, but lenders’ caution was understandable to an extent as they got to grips with what responsible and affordable lending looked like under the MMR. What no one expected was for lending to older borrowers to dry up quite as completely as it did.

Nationwide paved the way in May, extending its maximum age limit to age 85; others have followed suit, although not as generously, with Halifax lending to age 80, Santander, TSB and HSBC now lending to age 75 and a few other lenders, including RBS and NatWest lending to age 70. Family Building Society, Dudley and Cambridge Building Societies have no maximum age limit.

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What they all have in common is that they require proof of retirement income, which of course makes perfect sense. What is clear is that now the bandwagon has got rolling, lenders that have not already extended their upper age limit may need to jump on or risk being left behind.

So why are lenders doing this, and why now in particular?

However, the case for lending into later life is not as clear-cut as it used to be. The abolition in 2011 of compulsory retirement has paved the way for people to work to a much older age. And many people are, out of choice because they are still fit and well, or out of necessity because their pension is too small to live on comfortably.

The need for mortgages into later life is also growing because the age at which people get onto the housing ladder is rising. There is growing evidence that many people are not buying their first property until well into their thirties due to the burden of student loans, or the inability to raise a large enough deposit.

Another increasingly common issue is that lenders are now taking student loan payments into account when weighing up the affordability of a mortgage. With yet another increase in student fees on the cards, the next crop of students will probably leave university with debts of around £50,000 – the same amount as the average mortgage just 30 years ago.

This raises a number of questions. How does a young person save for a deposit while paying back a student loan each month? And, once they have got a deposit, how do they qualify for a mortgage if their student loan repayments take them over a bank’s affordability threshold? Increasingly, for a mortgage to be affordable the term is extended to 30 years as standard. These factors alone significantly raise the average age of the first-time buyer, and have a knock-on effect of extending the period of time for which they will need a mortgage on their first home.