According to the Office for National Statistics, one-quarter of the UK population will be over ‘normal’ retirement age by 2034.
Given that the UK government abolished the default retirement age in 2011 and that 39 per cent of 65-70 year-olds would apparently prefer a period of part-time work before fully retiring, you could be forgiven for thinking there would be a wide choice of mortgage products specifically aimed at older borrowers.
Traditionally, mortgage lenders have set rules prohibiting the mortgage term running past the borrower’s expected retirement age (often 65), having taken a view in the distant past that only earned income was an acceptable means of making the monthly mortgage payments.
Such inflexibility in a changing labour market where there is now no such thing as a ‘normal’ retirement age, has often seen consumers of a certain age drawn towards the type of specialist ‘equity release’ products, where mortgage interest is typically added to the original mortgage sum as it falls due.
The outstanding balance (ie the initial capital sum, plus fees and interest over the term) is then repaid from the sale of the house, either upon the borrower going into long-term care or from their estate after death.
Some other providers’ Lifetime Mortgages offer the option to pay all or some of the interest or capital, thereby preserving some equity in the property after death.
What is perhaps less well known is that a growing number of traditional mortgage lenders are willing to offer solutions to make lending into later life a reality. A number of building societies have increased the maximum age to which they will lend on a standard mortgage to 85, with some even removing this criterion altogether. These societies recognise that older borrowers present a lesser risk than some other categories of borrower, with most (from my experience) seeking lending at a lower loan-to-value ratio than typical first-time-buyers, while having a steady and sustainable income stream in retirement to satisfy the lender’s affordability requirements.
Such lending usually takes the individual circumstances of the applicant into account, and is generally at lower interest rates than those charged on the ‘specialist’ later life products.
There can, of course, be no single solution or product that will be right for everyone; and it is therefore essential that advice, taking the borrower’s individual circumstances into account, is provided to everyone considering later life mortgage lending.
New research from the Council of Mortgage Lenders, however, suggests that consumers often struggle to navigate the market as lenders and advisers generally operate in silos that prevent consumers comparing products across the whole market.
This, of course, provides an opportunity for the UK government’s Single Financial Guidance Body (SFGB) to narrow the gap between the lenders and advisers.
As the SFGB will not be introduced until the autumn of 2018, consumers might wish themselves to establish what their local mortgage lender has to offer as part of the bigger picture. Mark Thomson is chief executive, Scottish Building Society