Later LifeJun 11 2018

Advisers shun calls to grow later life lending

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Advisers shun calls to grow later life lending

Advisers have welcomed more variety in the residential mortgage market for older people but are reluctant to consider the products for all their clients, despite calls to do so.

Later life lending - not to be mistaken for equity release or lifetime mortgages - are mortgages that carry extended maximum age terms, allowing people of older ages to borrow money against their existing house or for a new house purchase.

Challenger bank Aldermore, which recently launched a specialist mortgage aimed at the over 55s, said it was a rapidly growing market that was “significantly underserved” by lenders and advisers.

The bank said about two in three people were statistically refused residential mortgages for age reasons, and those missing out were people with interest-only mortgages who have no proper plans to pay them off, or those looking for flexibility with their money in retirement.

The Financial Conduct Authority (FCA) has already recognised the problem around maturing interest-only mortgages and changed its rules around the products earlier this year, now treating them as standard mortgages rather than under equity release standards.

Unlike equity release, residential mortgages don’t require people to seek advice before they can buy them but Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), said he would be “very surprised” if lenders offered later life mortgages without advice due to their similarity.

He called on advisers to consider the opportunity, saying advice was “genuinely required” in this space to achieve better customer outcomes.

Robert Forbes, chartered financial planner at Stadden Forbes, agreed there was a "definite need for these type of products".

He said: "Demand is huge partly because given people live for a long time the equity release option can get really expensive, so this type of thing is a great middle option."

But other advisers FTAdviser spoke to questioned the need for the product.

Alistair Cunningham, financial planning director at Wingate Financial Planning, said: “Why would someone want a term, albeit a longer term, when they could just get a lifetime mortgage or they could downsize?”

Alan Chan, director at IFS Wealth & Pensions, said it would help if mainstream mortgage lenders were to extend their terms to help people with maturing interest-only mortgages, but he denied the market was “in desperate need for innovation”.

Kusal Ariyawansa, chartered financial planner at Appleton Gerrard Private Wealth Management, meanwhile, saw a potential application for people wanting to access cash but leave their pension invested.

He said: “What has amazed me is the number of people who are prepared to pay additional tax in order to access pension money after the freedoms. A repayment plan naturally progresses to inter generational planning with such cases.”

At present later life lending is offered by a relatively small number of specialist banks, such as Hodge Bank and Aldermore, as well as some building societies.

Aldermore’s Charles McDowell believes this is not enough to serve the market although he said the situation has improved in the past 18 months as more smaller building societies came in and the high street lenders pushed up the maximum age limits to 75.

"But it’s still significantly underserved,” he said. He predicted the retirement lending market to reach a size of £142bn or more in 10 years’ time.

Scott Gallacher, chartered financial planner at Rowley Turton, said there were good reasons for mainstream lenders to be reluctant to dabble in the market.

“It’s likely to be a relatively small market with complications around the FCA’s affordability rules and potentially vulnerable clients.

“Long-term affordability could also be a real issue if people are on fixed pensions or interest rates rise significantly.”

Ray Boulger, senior mortgage technical manager at John Charcoal thought the new FCA rules had opened up the space for more providers to come forward with retirement interest-only mortgages. He agreed the demand was there.

HSBC, which is handling mortgage requests from people above retirement age on a case by case basis, also thought the market would change in response to the FCA rules.

A spokesperson for the bank said: “We are supportive of the introduction of these new rules, which will enable more opportunities for later life lending propositions, and we are reviewing how we can further support this market following this rule change.”

Santander said it was unable to lend beyond age 75 but refers equity release clients to Legal and General.

“We continue to review our policy and work to support the ageing population,” it said.