A bright future ahead for later life lending
Richard Groom is head of mortgage sales at the Tipton & Coseley Building Society
There is no doubt that the coronavirus pandemic has had a significant impact on the mortgage industry.
It’s been a particularly tough time for first-time buyers who already found it hard to get on to the property ladder.
The lockdown has clearly exacerbated the problem, as many lenders withdrew higher LTV products from the market.
At the Tipton, we are fully committed to first time buyers and intend to keep our 100% LTV Family Assist product in place.
For older borrowers, the outlook is much brighter, as lenders continue to offer a range of choice and flexibility with the products they offer to the over 50s.
The pandemic will not dampen demand for later life lending and the market is set to grow, in line with an ageing population.
According to the Centre for Economics and Business Research, the later life lending market will increase from £86bn in 2018 to £142bn by 2027.
There are many factors at play which points to a bright future ahead for later life. Importantly, lenders will respond to this growing demand by educating and innovating, to meet the needs of a changing and ageing population in the later life market.
A large number of older borrowers are confronted with the same challenge, in that they have no repayment vehicle in place to pay off their mortgage.
According to UK Finance, some 20,000 borrowers aged 65 and over have interest‐only mortgages, which are set to mature this year.
Many of these have more than £100,000 remaining on their mortgage, having taken out the loan in the late 1980s or early 1990s, backed by an endowment policy, ISA or pension.
Later life lending options through repayment, RIO and lifetime mortgages now offers a clear pathway to those without a repayment vehicle. Indeed, as innovation in later life lending gathers pace, borrowers are likely to seek even more flexibility by potentially taking out several products during retirement.
As the demand for a later life solution for customers intensifies, lenders will continue to innovate and adapt their offering. At the same time, there is clearly a great opportunity for brokers to advise their clients on the best product to meet their particular circumstances.
At the Tipton, we have responded to several market challenges presented to older borrowers. With the regulator tightening its requirements for RIO sales where they must be affordable on an individual sole survivor basis, this has made sales more difficult to process.
The fact that both partners must be able to show they can afford the mortgage payments on their own, in the event that one partner dies has prevented many brokers from executing RIO sales.
In response, we amended our Later Life lending criteria applicable to retired customers who are applying for one of the Tipton’s Later Life mortgage products.
We introduced a downsizing option, upon the death of either customer. This criteria change gives them peace of mind knowing that they can downsize in the event of a joint applicant sadly passing away.
With over half of all residential mortgage deals now open to borrowers aged 55 or over at application and having a
maximum age of 75 or above at end of the mortgage term, the later life market is clearly going from strength to strength.
Many lenders now have no age limit on being a mortgage
borrower. Now older borrowers have more options than ever before and they can choose between a later life mortgage, a RIO mortgage or even equity release.
But as the market evolves and grows, lenders and brokers must continue to educate, adapt and innovate to meet the needs of an ageing population confronted with array of choices when it comes to later life lending.