The landscape has changed for older borrowers

This article is part of
Guide to later life lending

The landscape has changed for older borrowers

The market crash triggered by the Covid-19 pandemic will have caused many older savers to rethink their finances.

Some may have been forced to delay retirement plans, while others may have taken mortgage payment holidays.

UK Finance reported in June that almost 2m people had applied for some form of payment holiday since the start of March. Even for younger borrowers, these measures could extend their repayment periods into their retirement.

Even before this year’s extraordinary challenges, the changing nature of retirement in the UK – including pension freedoms and the rising state pension age – has prompted savers to take stock.

This has included a growing number of over-55s seeking loans through equity release products or similar options.

“For some while, lenders have acknowledged that as people are living and working longer and there is a need to provide mortgages to an older age,” says Charlotte Nixon, mortgage expert at Quilter.

“Therefore, earned income can be considered by some lenders to age 75 or even 80.

"There are also a number of lenders that will consider mortgages to age 85 or older based on pension income to allow for these borrowers to move home, capital raise to assist other family, and accommodate interest-only mortgages which have ‘expired’ with no repayment vehicle in place and sale of property not being a palatable option.”

Providers are willing to lend to those who are working longer – although for mortgages this may require a larger deposit. HSBC, Tesco Bank and the Post Office are among those with loan products specifically designed for older borrowers, with upper age limits well beyond the state pension age.

Phil Bailey, sales director at mortgage technology provider Twenty7Tec, says ultra-low interest rates make borrowing more attractive, while rising care costs may be a concern to many.

“Finally, beyond the mortgage market, the pensions revolution has meant that individuals are now well-versed in handling their whole portfolio of financial assets,” Mr Bailey adds.

As demand has grown among this audience, Emma Graham, business development director at Hodge Bank, says lenders have had to be more flexible in the forms of income they accept when approving a loan.

As well as regular wages, this can include rental income, dividend payments, private and state pensions, drawdown funds, and foster and maintenance income.

Steve Butler, chief executive of Punter Southall Aspire, adds that some providers have developed “highly flexible lifetime mortgages that offer highly competitive rates that can be tailored to a borrower’s individual requirements”.

Borrowers who already own their home outright can use some of the equity in the property to finance a second deposit, points out Jonathan Hives, private client director at The Arlo Group.