Challenger bank enters later life mortgage lending

Challenger bank enters later life mortgage lending

Challenger bank Aldermore is to launch a specialist mortgage aimed at those aged 55-plus, in what bosses said was their response to a growing market need.

The mortgage, which aims to plug the gap between ordinary residential mortgages and equity release, will be available from Monday (14 May) on fixed two, three, five and 10-year as well as variable terms.

It will be offered to people aged 55 to 85 with a maximum loan size of £400,000 on a maximum loan-to-value of 75 per cent.

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Rates start at 3.38 per cent and there are no early repayment charges for the variable product and after five years for the fix.

Aldermore will pilot the product for a period of time through Openwork, Atom, Personal Touch Financial Services and Finance Planning.

The bank said it wants to bridge a gap in the market for older people, who often struggle to receive credit because of their age.

To ensure responsible lending it has developed a specialist later life lending affordability check, which will test a number of scenarios on joint allocation and will take into consideration things like life insurance held by the applicants.

Charles McDowell, commercial director of mortgages at Aldermore, said the bank had seen growing demand from brokers for later life lending as currently about two in three people were refused residential mortgages for age reasons.

He said: “We really think the approach we are taking to servicing this segment of the market is a much needed approach and can be very successful.”

The retirement lending market was worth £65bn in 2017, according to UK Finance, and is predicted to reach about £142bn assuming no disruption.

Mr McDowell thought that figure could yet be greater as more people enter the space.

He pointed to growth in the equity release market, which has tripled in value to £3.1bn in the five years leading up to 2017, and an estimated housing wealth of those aged 55-plus of £1.5trn.

Aldermore thinks a key customer segment will be people who hold interest-only mortgages and have not made proper plans to pay them off.

Mr McDowell said: “The house buying journey has changed markedly over the years. First-time buyers are more likely to be in their 30s or 40s, second stepping is delayed and retirement is later. 

“It is our responsibility as a specialist lender to ensure we evolve our offering to address this change and we have worked hard to build a proposition that we are confident will meet this need.”

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said it was great to see innovation in this space.

He said: “There is a recognition [from the FCA and government] that pension provision isn’t going to be enough to manage people’s income in retirement. 

“Therefore the use of what is an acquired asset of a respectable size [is needed]. The market place is limited, this [product] adds another dynamic of choice.”