Understandably there is a great deal of ‘noise’ around the later life lending market at present – many commentators believe it represents a significant opportunity for mortgage advisers and their older clients, and I’m inclined to agree with them. There are all manner of demographic and demand drivers that mean more and more older people require or want funding up to, and into, their retirement and there is a far greater acceptance by homeowners that they can (and should) use their property to generate this money.
The equity release sector, up until 12-18 months ago, tended to dominate proceedings but now we are seeing far more ‘mainstream’ activity with many more lenders offering higher maximum age residential mortgages, plus of course we’ve had a flurry of activity in the Retirement Interest Only (RIO) mortgage sector which caters for those older homeowners who are able to continue paying their mortgage interest.
That ‘flurry of activity’ I talked about has come, in great part, from an increasing number of building societies entering this sector and, again, you can see the reasoning behind this, especially when you consider the traditional age demographic of many mutuals’ customers. It clearly feels odd to these societies that they might have a customer’s mortgage business for all their working life, perhaps to only lose that business to a specialist or other lender, should they need a loan into retirement, for example.
Societies clearly sense an opportunity here and, despite there being some reports that RIO business for example has been very low to date, one can certainly envisage a future in which the levels of this business increase significantly. After all, many more people are likely to come off interest-only mortgages in years to come, plus more will want to access the equity in their home for a variety of retirement needs.
Societies have scaled up their presence in the later life market over the past year, and that’s not surprising given the level of competition they’re currently dealing with in the vanilla/low-risk/mainstream market. It’s also because of this that we’re seeing mutuals far more active, for example, in the first-time buyer market, not just in terms of products which require the support of the Bank of Mum & Dad, but also a greater inclination to offer high LTV mortgages which traditionally have been the springboard many a first-timer has used to get onto the property ladder.
This kind of niche focus might seem somewhat surprising to outsiders looking in and having a ‘traditional’ view of building societies, but certainly since the Credit Crunch you could argue that this lender community has been far more willing and able to move into these previously under-served sectors.
It might startle some to say that high LTV/first-time buyer mortgages fit into this under-served category but, in the immediate period post-Crunch, this was undoubtedly the case. In recent years we’ve seen more high LTV lending and product offerings, and many building societies have utilised private mortgage insurance in order to help them de-risk in this area.
In effect, societies have provided consistent and constant support for first-timers who are always attempting to get over the deposit-saving challenge. That ability of mutuals to work for stakeholders rather than shareholders has no doubt helped them forge strategies and develop products which ensure they cater for the borrower, rather than those who might benefit from a higher dividend come results day.
The fact that building societies continue to work in such an effective way and that recent figures from the BSA show that around one in three mortgages in 2018 provided by societies were for first-time buyers, shows you where such a focus is taking the sector. And it’s a successful approach – gross lending figures from the BSA for 2018 showed a 7% rise compared to the year previously, up to £68.9bn, while net lending was up 12% to £17.9bn.
That, lest we forget, comes within what we might all deem a ‘challenging market’; one in which uncertainty has provided a huge dampener. In essence, we have to; salute the building society sector for a willingness to go where other lenders might fear to tread and to also understand the needs of their customers, whether they are coming to the end of their mortgage journey or just starting it.
Pad Bamford is business development director at AmTrust Mortgage & Credit