One major consequence of the credit crunch and the financial crisis which engulfed the world is that groups of people who had once been deemed creditworthy lost this ‘privilege’. The nature of who and what was deemed too risky a loan changed and certainly those who are coming up to, and beyond, retirement age became a group which had its ability to borrow for any length of time compromised.
There is much talk about lending into retirement and what should be viewed as responsible lending and the notion of lenders taking individual circumstances into consideration, however there have been some fundamental changes to digest. Indeed, in this day and age one hesitates to even talk about ‘lending into retirement’ as this suggests the individual is no longer working at all. We know only too well that many individuals who are beyond retirement age are continuing to work for a whole host of reasons.
Perhaps it would be better to refer to the ‘older borrower’ when we discuss the options that are currently available and those that have been taken away in recent times. If we go back a number of years it was not impossible for the older borrower to be able to have a mortgage, even an interest-only mortgage, and make their monthly payments up until the tender age of 85 or more before the loan was due to be repaid.
How things have changed. The shift in the financial services sector brought on by the crisis has meant all lenders reassessed their borrowing criteria alongside having to take into account a range of regulatory and capital commitments. Essentially, when we look at the lot of the older borrower it’s fair to say lenders no longer have any appetite to lend to individuals into their 80s and beyond. This means that, in recent years, lenders have reduced the age the borrower has to repay the loan down to 75 and in some cases as low as 70. Others have simply decided to remove their product(s) entirely for those beyond retirement age.
This shift is unlikely to change anytime soon even in a market which is recovering steadily. Which leaves some fundamental issues for the older borrower to confront in the future; not least the fact that the retirement age will be increasing to age 67 and above for most of the population. At a time when we will all be expected to work longer it seems somehow back to front that the age at which you have to repay a loan should be coming down.
This is all a bit doom and gloom, however there is something of a knight in shining armour charging to the rescue as the equity release market takes up the mantle. Our sector is working hard to put in place a number of products/plans that those in retirement can use, with advice absolutely necessary in order to achieve peace of mind.
These plans generally have no repayment date and can be in place until death or long-term care is needed and the customer can choose to carry on with all or some of their repayments, or they can just choose to let the interest roll-up under a lifetime mortgage or use a home reversion plan.
At a time when there could appear to be very few options for older borrowers the equity release market is innovating and is certainly providing options for those individuals who find themselves in a predicament about what to do with their existing mortgage. The message is slowly getting out there that equity release may be an option that advisers should be looking at to solve this problem and those who already have contacts with specialist advisers in this market are already solving this dilemma for their clients.
What will continue to help the cause is to have all advisers either specialising in equity release themselves or partnered with a local specialist who is able to help. After all this is, in the short-term, relieving customer’s anxieties but at the same time providing solutions for an aging population who are increasingly going to find themselves in this type of predicament.
Chris Prior is manager, sales and distribution at Bridgewater Equity Release
