In April 2011 the government removed the ability for employers to insist workers retire at age 65.
While the end to the default retirement age had, perhaps, less impact on that immediate cohort of retirees, today increasing numbers of people are working well into what was traditionally retirement – either through choice or necessity.
With demographic as well as social change meaning that people are reaching milestones like homeownership, marriage and children later than before, this flexibility has been a huge boon. It has also seen the rise of products that are aimed at over-55s and the mortgage market has been no different.
While equity release has been available for more than 30 years, we recently saw retirement interest-only (RIO) mortgages and later-life mortgages enter the equation as the idea of a distinct later-life lending market became a reality.
Naturally, there are challenges, and I think most people would agree that more consideration needs to be given as to how these products can interact within the market to deliver the best customer outcomes.
There was also the elephant in the room in that while there was general consensus that the market had significant potential, no one had as yet sized it in its entirety.
A study carried out by Key Group with AKG Financial Analytics suggested that the market is approximately £153.9bn, which apart from being a big figure is also an important figure as the sector needs to be correctly defined, sized and monitored to establish how it could and arguably should evolve.
The size of the later-life lending market and its future
AKG defined the market as “standard, RIO or equity release mortgages for borrowers over the age of 55 with terms that extend into, or start during, retirement”.
That was a definition built on the work by UK Finance, the Equity Release Council, the Association of Mortgage Intermediaries, The Investing and Savings Alliance and the Building Societies Association last year.
Analysis shows over-55s have existing mortgage borrowing – standard, RIO and equity release – of around £99bn, while annual new lending across all products is worth up to £14.9bn.
On top of that, over-55s switch a further £40bn of products a year.
While the figures speak for themselves, advisers surveyed also felt the market would continue to grow.
Indeed, more than half of advisers (51 per cent) reported an increase in later-life lending enquiries over the past 12 months. That rises to 58 per cent who expect a rise in enquiries over the next 12 months.
The future is arguably even brighter, with 77 per cent predicting a rise in enquiries from customers about later-life lending over the next two to five years, while 79 per cent predict an increase over the next six to 10 years.