There are more than 10 million people in the UK over 65 and the figure will have doubled in20 years-time according to government statistics. But it’s still unusual for mainstream lenders to cater for people who are economically active past retirement age who want to participate in the property market. We at The Mortgage Lender (TML) believe it’s a segment of the market that shouldn’t be ignored.
The population in the UK is changing, people are having fewer children later in life than they did a generation ago, people are also, generally, enjoying good health for longer, which means they can work and earn a salary for longer.
Yet many lenders have stuck rigidly to only allowing borrowers to take out mortgages that will be paid off by normal retirement age.
Part of the issue is that lenders reverted to known and comfortable territory after the global financial crash, pursuing those borrowers their management information told them would be the least complicated segments of the market to operate in, whilst still giving the impression of supporting a fully functioning housing market.
But, when we were researching which segments of the population were not being served by High Street lenders, people reaching retirement, or wanting to borrow into retirement, came up time and time again as segments that weren’t being catered for.
People reaching retirement, or baby boomers, are the generation that has worked hard, enjoyed better health than the generations before and realised their ambition of home ownership in huge numbers.
It doesn’t make sense for lenders to cut off their choice at an arbitrary age just because convention says it should. Lending into retirement is an area we believe will grow inexorably over the next twenty years.
Lenders should support it because it could underpin the rest of the housing market. Imagine you’re 59 and you want to remortgage to obtain a better rate and run the loan past your normal retirement date.
But you’re stuck because most lenders won’t consider lending beyond retirement age, even though you’ve got a regular pension income when you do retire and your expenditure is likely to reduce.
At The Mortgage Lender we believe people should have that choice. Our affordability model enables us to assess current and future affordability of applicants who need to borrow beyond their planned retirement date.
Importantly, we do not use the current expenditure when looking forward to the post retirement period, our affordability model is clever enough to recognise expenditure changes when people retire.
We’ll consider a loan to value of up to 75 per cent and lending up to a maximum age of 80 at the end of the mortgage term as long as the applicants retirement income supports the lending requested.
Evidence of their expected pension income is required, via their latest annual statement of pension due on retirement, for example.
Given that in 2008 there were 3.2 people of working age for every person of pensionable age and that ratio is expected to fall to 2.8 by 2033, retirees and their pensions, are going to become an increasingly important part of our overall economy.
It doesn’t make sense to deny them choice and lock them out of the housing market by refusing access to mortgage funding post retirement.
Pete Thomson is sales and marketing director at The Mortgage Lender