Sarah Davidson reports on the efforts being made across the industry to improve borrowing options for the silver-haired generation
It’s a rare occasion that it’s true to say the mortgage industry is truly aligned with its watchdog. But in the case of lending to borrowers before, into and in retirement it seems everyone agrees: innovation is sorely needed.
It hasn’t always been this way. The Mortgage Market Review turned the screws on lenders, forcing them to require evidence that demonstrated how each and every borrower intended to repay their mortgage each month. The intention of course was to protect customers from taking out loans they had no chance of being able to afford. The unintended consequence however, has been a drastic reduction in the number of options available to borrowers who need finance after they retire.
A considerable effort has been made collectively by the Building Societies Association, the Council of Mortgage Lenders, the Intermediary Mortgage Lenders Association and the Association of Mortgage Intermediaries to find a way to help this group of borrowers, which is large, and getting larger.
Government forecasts estimate that between 2015 and 2020, over a period when the general population is expected to rise 3%, the numbers aged over 65 are expected to increase by 12% - over a million people - and the numbers aged over 85 by 18% or 300,000.
Research from Citizens Advice published late last year meanwhile estimated that 934,000 people have an interest-only mortgage without a plan for how to pay it off when reaches the end of the term. That is much higher than a previous estimate issued by the Financial Conduct Authority in 2013, which put the number at around 260,000.
The average age of those taking out an interest-only loan in 2015 was 56 compared to 42 in 2005 according to the CML. There are no clear figures showing how many interest-only mortgages will reach maturity for those beyond retirement age, but behind closed doors conversations are being had by lenders and the regulator about how to avoid financial disaster for many thousands of people.
“While there are a few conventional lenders currently trying to cater for people needing to borrow long past retirement, the eligibility of these plans can still be restrictive to many,” says Mark Lambert, principal of Viva Retirement Solutions. “The only real option for older long-term interest-only borrowers is a lifetime mortgage. This provides them the ability to have a mortgage for the rest of their lives, often avoiding any affordability assessment and giving them a much more flexible approach to what payments they make and when they make them, if they choose to make any payments at all.
“The biggest restriction with lifetime mortgages for these types of clients is the amount available as this is based on age and property value. Clients must be over 55 and the younger they are the less they can have, meaning many are unable to raise enough funds to be able to pay off their existing mortgage and leaving them little option but to sell-up and downsize.”
It is a conundrum that has gained increasing spotlight in the past 12 months. Not only is the CML leading a group whose aim is to debate the practicalities of lenders innovating in this area, the FCA also has a project group focused on meeting the challenges regulation poses to lending in and into retirement. Several satellite groups exist as well including the Financial Services Vulnerability Taskforce and the money Advice Service Older People’s Steering Group.
