Homeowners to increasingly take mortgage debt into retirement
David Jones is director of Click2Check
I very rarely make any prediction with a 100% degree of certainty, especially in the times we currently live in, but from a mortgage market perspective I think I’m on fairly safe ground in suggesting, in the months and years ahead, there will be an increasing number of homeowners not only taking mortgage debt into retirement, but also willing to look at their house as an asset to be utilised.
The travel over the last few years has already been firmly in that direction, and I see nothing to slow it down, not least the fact individuals are increasingly likely to be in their mid- to late 30s before they get on the property ladder, they are more likely to be taking 30/35-year-plus mortgage terms, and when they therefore get to a ‘traditional retirement age’ they may not be having a traditional retirement experience and they are much more likely to have mortgage debt to service.
The ways and means of how that mortgage debt is serviced are growing, and that’s a positive thing.
There are now greater options for those in later life in terms of how they pay the mortgage off – they may opt for a further mortgage with a higher maximum age, they might go for a RIO mortgage, or they could access the existing equity and potentially pay off the mortgage via that route.
Essentially, what we are saying is that those in later life have far more complex financial situations than previously, there is therefore a greater need for advice, and there are options available to them which were simply not there five years ago, let alone 20.
I read a recent report from Canada Life which focused on the ‘retirement journey’ and it suggested, over the next 15 years, two different journeys would be most prevalent.
Those being the ‘Complex Family, Complex Finance’ one – of which I’ve touched on above – and the ‘Late Financial Bloomer’, again which I’ve touched on, those being the people who have passed key life events, like buying a first house/getting married/having children, later in life and have had less time to accumulate the wealth that may be required for their retirement.
As mentioned, what this means is advisers are now much more likely to be dealing with later life clients than ever before, and that following the situation most people have dealt with in 2020 and which continues now, their financial picture will not only be much different to clients of that age a decade or more ago, but there is going to be a much greater need to access the equity within a property than ever before.
This will be no great surprise, because right across the board clients have more complex financial situations than historically.
We have a change in the way people are working, greater numbers of self-employed, greater numbers of small business owners, multiple incomes and complex outgoings, etc.
What we’re seeing is individuals later in life with exactly the same sort of complexities; you may see a retired individual mortgage-free with no debts who wants to access their home to buy a car or go on a cruise, but you’re much more likely to see an individual in later life with no fixed retirement date, with a mortgage and other debts to service, with a lack of pension provision, with children they want to support onto the housing ladder – the list goes on.
This is a specialist situation with a specialist need, and – much like in the more mainstream mortgage space – advisers do really need to get to grips with a client’s financial situation and credit position, before they can move further down the advice track.
It’s made more complicated by the current regulatory position, where mainstream mortgage advisers can offer RIOs and standard mortgage options but won’t necessarily have the authorisation/qualifications/experience to look at equity release options.
In that sense, we will need a more joined-up approach to later life lending.
But it’s a fundamental that without that upfront financial detail from a client you will not be able to work from a solid base.
It’s as true for equity release advisers as it is for those operating in the mortgage space. We’re all acutely aware that clients will have different levels of knowledge about the finances, and without using a product like credit assess, advisers could be flying blind, reliant on memorised info which may be very far from up to date.
Market commentators and advisory firms I speak to are well aware of the opportunity that later life advice affords them, and the likelihood that this will only grow in demand.
Firms should continue to shape their proposition and service offering to deal with this growing need, and they should also ensure they can service this borrower cohort effectively, having all their detail upfront to provide the best advice possible.