Expert discusses why demand is increasing for the product
Retirement interest-only mortgages have seen rising demand in recent times, according to Hampden & Co.
Graeme Hartop (pictured), chief executive at the firm, said it is an interesting development
“Although retirement mortgages have been around for a while, and sort of the cousin of equity release, this market is now branching out on its own,” he said.
He said there are two parts to this particular market - the first being the high net worth segment, where the majority of people are utilising this offering for planning reasons around their own assets and liabilities.
“At the other end of the spectrum, you have people who really need to borrow against their home, because it is more of a distressed type situation,” Hartop said.
Hartop said that the product has seen a rise in demand due to the economic outlook, which has made people rethink what they should do with their money.
“This has led more people to want to pass money down through generational wealth, in order to help their younger relatives,” he said.
It has become increasingly clear that getting on to the housing ladder is only getting harder for future generations, which Hartop said has led to an uptick in intergenerational financial planning.
In addition, Hartop highlighted, house prices have been rising quite significantly over the last few years, so houses are becoming more valuable.
“Inheritance tax is also becoming more of an issue, so there are people undertaking more planning to deal with that particular liability,” Hartop said.
Regulation within the housing industry is completely different to what it used to be in the past, and Hartop said this has led to younger generations becoming more reliant on the bank of mum and dad. The regulatory requirements and the modelling that has to be done around affordability, Hartop said, has become so strict that many are struggling to meet lenders’ demands.
“We have heard recently about the return of deposit free mortgages, and this will assist many more people on to the property ladder, but this option does not come without its drawbacks,” he said.
While it is a positive for the market, Hartop said many are cautious of this product type due to the issues that stemmed during the financial crash.
Working with wealth managers
Hartop said portfolio lending has also been strong in 2022, and added that Hampden & Co is one of the few lenders in the market working with wealth managers to help clients borrow against their portfolios while still remaining invested in the market.
“The average loan against a portfolio is £665,000, and we work with wealth managers to assist them in offering their clients liquidity,” he said.
In these cases, Hartop said clients often do not want to sell their portfolio, usually because of capital gains tax, but they still need to borrow.
“When this occurs, we essentially take security on the portfolio and then lend against that; there is an all-round benefit to this as the client gets the liquidity they need, and the wealth manager keeps the assets under management,” Hartop said.
Hartop has seen increased demand for this type of facility, and again, he said it can help with tax planning and being able to pass wealth down to the next generation, as well as to help mitigate any tax liabilities.
Have you seen rising demand for retirement only mortgages? Let us know in the comment section below.