Borrowing into retirement has become increasingly common in recent years, as the lifestyles and financial needs of those aged 50 and over have changed. Higher house prices, increased cases of later life divorce, and buying a retirement home to be closer to family and friends in a more expensive part of the country are some of the reasons driving growth.
There’s also been an increasing number of people returning to live in the UK after decades living overseas. Often older than the average first time buyer, these people have returned to the UK to permanently settle down and want to own a home rather than rent long-term.
The trend in borrowing into the retirement years looks set to continue over the next two decades as the number of people taking out a mortgage with a term that will last into their 60s, 70s and 80s continues to grow.
This is mainly due to the fact that the average age of first- and second-time buyers has increased over the last few decades, which means that someone in their 40s on a 30-year term will be in their 70s by the time the mortgage is repaid. In addition, higher house prices have resulted in lengthier terms that take longer to pay off.
Over the past five years, we’ve seen an increase in the number of enquiries from borrowers aged 55 and over who are coming to the end of their interest only mortgage term and are looking for advice on what to do next.
We’ve also seen an increase in applicants in retirement who want to release money from their home to make home improvements, fund social care, or provide their families with a financial gift to help their children or grandchildren get onto the property ladder, or generally improve their lifestyle.
Many of these people are concerned that they are too old to take out a mortgage, yet there are a number of lenders willing to cater to the needs of this ever-changing and ever-growing demographic.
More people than ever before are choosing to continue to work past the state pension age, whether full-time or part-time to supplement pension income or to remain active in their later years, and lenders are increasingly adapting their lending criteria to cater to this lifestyle change.
For example, Loughborough Building Society has no maximum age limit on its mortgage products and allows terms of up to 35 years. Mortgages can be interest only, repayment or part and part, with applicants able to use the sale of their property as a repayment strategy up to 60% loan-to-value provided the mortgage is taken past the age of 80 years old. There is also no minimum equity requirement.
Of course, the options available to any borrower depend on each individual’s circumstances. Income levels and affordability are always assessed accordingly, with up to 4.5 times single or joint income available, and the second income multiple assessment of 3.5 times based on the balance only when the oldest applicant reaches age 80.
Borrowing into retirement is set to become more commonplace over the next few years as those approaching and those already in retirement seek funding options to finance their changing lifestyles. People are living longer healthier lives than ever before and the industry has a duty to evolve its lending criteria to provide practical lending solutions for later life borrowers in order to help them achieve the lifestyle they want in retirement.
Ashley Pearson, national BDM at The Loughborough for Intermediaries