The landscape has changed for older borrowers

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.

Lenders have acknowledged that as people are living and working longer and there is a need to provide mortgages to an older age Charlotte Nixon, Quilter

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.

In addition, with older borrowers likely to have a longer history of repayments, a healthy credit record will help get loans approved, he notes.

Regulation

Mr Butler says a growing number of people are reaching retirement with interest-only mortgages and “no means of repaying outside of selling their property”, requiring a new approach from lenders and the Financial Conduct Authority (FCA).

“The regulator has put pressure on lenders to develop solutions to support [borrowers] who are in a position to continue to make interest only payments,” he says.

“The regulation within the market has ensured that those solutions that are available and the advice… is of a very high standard. Where applicants are identified as vulnerable, higher levels of oversight are used to ensure appropriate advice standards are maintained.”   

However, for those approaching retirement or reassessing their finances, there is a danger that consumers may still not get the best advice or be able to access the best products for their needs.

Sonia Fernandes, mortgages manager at UK Finance, warned in a blog published last year that the “siloed” state of later life lending made advice more complex, and called for the FCA and the Prudential Regulatory Authority to work closely together to make the rulebook more coherent and customer-friendly.

Beyond equity release

The changing nature of retirement means traditional routes such as equity release may not be the best option for borrowers.

However, outside of the secured loan market, providers have struggled to adapt to concepts such as phased or delayed retirement, according to Paul Lindsay, founder and CEO of Free2, a newly established loan platform for the over-55s. This means “loan underwriting rules will need to catch up with this new norm”, he adds.

“Our research showed a strong rejection of equity release by people below 70 who may have only recently repaid their mortgages with concerns about the effects of reducing capital for their estate,” Mr Lindsay says.

People aged over 55 and living on retirement income are “greatly underserved in terms of the size of loan they can borrow”, he adds.

Hodge Bank’s Ms Graham says those seeking loans later in life need products that are “flexible to the changing needs of customers”, for example by including early repayment options.

With the UK only just starting to lift lockdown measures, the post-pandemic world is yet to take shape. It is clear already, however, that some providers will have to adapt their approaches to meet new demand and help those whose circumstances have been challenged.

Quilter’s Ms Nixon says: “If, as a result of Covid-19, there are clients whose circumstances have changed and now need to maintain a mortgage longer or indeed secure a mortgage at an older age, there are lenders who can accommodate them.

“However, at present it is mainly the smaller building societies that offer later life lending where underwriters can consider bespoke lending solutions to suit individual needs.”