Given the demographical needs of the UK population, it’s hardly surprising that later life lending is one of the fastest growing sectors of the modern mortgage market. Of course, this comes from a relatively low base point but when you see the raft of lenders entering this sector, it just shows the potential and demand being illustrated throughout the UK.
This is a market which many providers have previously avoided, stemming mainly from a complexity, risk, appetite and regulatory standpoint, but is one which is now being eyeing with renewed enthusiasm and vigour.
According to Moneyfacts, June saw 1,074 mortgage products on offer for people whose age when the loan matured was 80-84 years. For context no such products were available in February 2014 when the dataset started. Home loans with a maximum age of over 85 years – at the end of the term – have similarly spiked from 33 to 239 available products over the same period. Additional data suggested that 54.98% of all residential mortgage products now have a standard maximum mortgage term of up to 40 years, representing a total of 2,744 products. This is up from 50.89% in March 2019 and 41.54% five years ago.
So, what are the driving forces behind these increases?
- It’s estimated that the over 55 population hold around 75% of the property wealth in the UK
- Parents are predicted to hand out £6.3bn worth of loans this year in a bid to help their children get on the property ladder, according research from Legal and General and the Centre for Economics and Business Research (Cebr)
- Lending past the retirement age is now an accepted requirement and a growing number of borrowers – through choice or to meet affordability requirements – are opting for longer-term mortgages
Although, these are just some of the factors influencing this and other areas of the mortgage market.
From a lending perspective, many smaller lenders have had to adapt their strategies by extending propositions into more niche areas to avoid getting embroiled in mainstream pricing wars. For example, here at Hanley Economic Building Society, in order to mitigate the risks of a push into higher-LTV loans, retirement interest-only mortgages and other alternative product areas, we have taken out insurance on 80% plus LTV loans. I can’t speak for other lenders, but I do not imagine for one minute that we are the only building society making such moves.
As more providers enter later life lending, greater awareness will follow amongst consumers and within the intermediary community. The key to future success is a robust, professional advice process aligned with greater product choice and flexibility across these kinds of offerings. This is a balance we must get right in order to stay within regulatory boundaries, better educate the market and generate the right kind of solutions for such borrowers and their families. We are currently moving in the right direction, and let’s hope this continues for the foreseeable future.
David Lownds is head of marketing & business development at the Hanley Economic Building Society