Lending into retirement has been a major bug bear for borrowers in recent years as the mortgage market adjusts to changing demographics.
Life expectancy is rising and working patterns are changing so we need the specialist sector to keep up with changes.
There has been a 26% growth in the number of workers over 65 and they are requiring loans more than ever.
The state pension is also increasing too with the triple lock policy of the current government. It means the state pension level must increase in line with earnings, inflation or 2.5%, whichever is higher.
Private pension provision is also changing with newly created early access to pension savings through changes made by former Chancellor George Osborne. Anyone can access their pension pots from 55 years old rather than being forced to choose between an annuity or restrictive drawdown policies.
Various studies show that pensioners now have more disposable income than younger people, which could be reflected in mortgage affordability checks.
In the conventional mortgage market, we have seen lenders adjust their offerings to offer loans to older borrowers.
Building societies were the first movers by offering support to older borrowers and not discriminating on the basis of age.
National newspapers have campaigned for more access and regulators have tried to ensure their rules don’t prevent offerings too.
But the specialist sector has been slower to catch on. We have some lenders with no upper age limits but many have limits at 70, which means a 25-year mortgage can be taken out at 45 years old at the latest.
We hope to see this change with lender competition in coming years as other areas keep up with the shifts.
It would be helpful to see more complex mortgages being allowed to extend into making payments beyond 70 too. There are some exceptions among lenders but most still take a cautious view.
They are good borrowers with wealth and income to pay for the mortgage so there is no reason why lenders should be reluctant to get involved in the providing solutions.
The FCA’s responsible lending review highlighted that the introduction of the mortgage market review did not prevent lenders lending into retirement, only that there was a responsibility to ensure it was affordable.
The regulator FCA insists it has encouraged lenders to develop more products for older people. The current Mortgage Market study may explore this area further as it reviews the customer journey.
The second charge mortgage sector, for example, is much more progressive in offering loans into retirement and has been ahead of the specialist sector.
A conventional mortgage has advantages over other borrowing options such as equity release because borrowers are more in control of costs.
Equity release has been the Holy Grail of policymakers for the last 20 years as they look to a way of releasing the UK’s housing wealth to fund retirements. The same job can be done by conventional remortgages.
Equity release has age limits meaning you can only take it out when you are over 55 and it also has strict criteria on offer.
It can eat into your inheritance and it can be distressing if the irreversible contract leads to a change of heart at a later date.
The sector is complex and requires specialist financial advice to take out a deal whereas specialist mortgages are more straightforward.
Let’s hope we see more diverse offering for older mortgage borrowers in the future.
Gina Blagden is head of residential mortgages at Brightstar Financial
