There has been some discussion of late about getting older people moving to help free up housing stock. Indeed, in the run up to the Budget, there were calls for some level of incentive aimed at encouraging older people to downsize, such as a reduced stamp duty burden.
However, there are times when moving simply isn’t the right option. If it has been the family home for a long time, then the owners may not be ready to leave the memories behind. Equally, significant numbers of families need support from older relatives for help with childcare, meaning having that extra space is essential.
Instead, there are many homeowners heading into later life who instead want to adapt what they have, to carry out some level of home improvements to the property, to make it more suitable for their ongoing needs to carry them through retirement. This could, for example, mean installing a new bathroom or kitchen, or improving its energy efficiency.
An added selling point for these older homeowners is that these improvements can provide long term financial benefits too. When the time eventually comes to sell the property on, for example to eventually downsize, then the improvement work may mean the owner is able to fetch a higher price. After all the added space, the newer facilities or simply the fact that the property is more energy efficient, should mean that it is more desirable among buyers and renters alike, boosting its appeal to homebuyers or investors.
Unlocking equity for home improvements
The trend for greater levels of home improvement has been taking place for some time, in part boosted by the impacts of the pandemic. Many people across the country took a fresh look at their homes, to determine whether they really met their needs.
And while some saw that as the opportunity to move somewhere new, rocketing house prices meant that was not an option for everybody. Brokers and lenders saw no shortage of clients looking to improve rather than move.
Those rising house prices provided a boost for home improvers too, though. With values rising so quickly, many owners saw their equity stakes increasing substantially too, providing additional wriggle room for raising funds against the property which they could devote to this home improvement work. And while house price rises have slowed somewhat of late, the reality is that substantial numbers of homeowners are able to tap into larger equity stakes to fund that improvement work.
Passing the age test
Unfortunately, we know from our discussions with brokers that there can be challenges for some older borrowers when it comes to raising the funds required for home improvements. While lenders are only too happy to support younger borrowers, given the decades they still have left in the workplace, there can be some reticence when it comes to those in later life.
It doesn’t have to be like this, however. If lenders take a more versatile approach, and look beyond the potential red flag of a borrower’s age, they can make a more informed decision.
We have seen a host of cases that fit this bill with our interest-only with downsizing proposition. Clients recognise that their current property needs some work in order to fit their current needs, but accept that they will be better off downsizing at some point down the road. By utilising an interest-only with downsizing loan, they can raise the funds required for that work and only pay off the interest each month, comfortable in the knowledge that when the property is sold on there will be enough to cover both the purchase of their next home and pay off the loan.
It’s important to recognise that this form of lending suits more than just those raising money for improvement work too – we have seen a host of clients tap into that equity in order to consolidate debts, or even to combine debt consolidation with home improvements.
The truth is that the later life cohort is only going to grow in size in the years ahead, and that is going to translate into greater demand for some form of mortgage borrowing. It is incumbent on lenders to be more versatile, to work around perceived complexities in order to deliver the required funds rather than dismiss these cases out of hand simply because it doesn’t suit their automated systems.
Tom Denman-Molloy is intermediary sales manager at Mansfield Building Society
