Planning For Later Life Hampered By Outdated Rules Used By Lenders

Irwin Mitchell Private Wealth has called for further changes to be made to rules for older borrowers, in light of the recent flurry of activity concerning later life finances.

In a survey published at the end of June by the Council of Mortgage Lenders (CML), it revealed that one in three mortgages taken out by borrowers under the age of 55 run beyond the state pension age. Borrowing in later life has also increased, with the average loan size between 2012 to 2016 increasing by 11% to £112,000 plus the amount of mortgages being sold to those aged 70 or more increasing to 18% in 2016, up from 10% in 2012.

Another figure revealed in the survey was that 63% of property wealth, valued at £2.5bn, is owned by over 55s, suggesting that with the increase in later life borrowing, those who own their first property outright are looking to take on further mortgages to support holiday homes or buy-to-lets as another source of income to supplement their pension, or to help adult children buy a property.

For older borrowers who have a comfortable retirement and fall into the survey’s borrowing for ‘topping up’ category, such as those close to paying off their mortgage, as well as those using their property investment as a form of tax planning, the advice available leaves much to be desired: CML’s survey cites a lack of information regarding all options for older borrowers, including using equity release as a way of accumulating wealth in later life.

On the 19th July the government announced that the rise in state pension age from 67 to 68 would be brought forward by seven years from 2043 to 2037, a move which reflects the increased life expectancy shifts over the years as well as the UK public working well into their sixties and beyond. However, current lending schemes do not reflect any shift in attitudes by lenders in comparison to the government’s initial steps to recognise the changing demographic.

According to the CML survey, for later-life borrowers “the market is largely one of retirement finance rather than asset accumulation”, which highlights the growing gap between the mind-set of the aging population versus the advice that is meant to serve them. The survey also mentioned how “property ownership… is about extracting value from the equity in the home during retirement”, further cementing the public view that property as an investment asset is a popular choice for retirement, on which Irwin Mitchell Private Wealth has previously commented.

Expert Opinion

“Currently, the advice and options available to older borrowers are limited and are inadequate for the needs of an older demographic. Instead of being able to enjoy the fruits of their labour in retirement by for instance purchasing holiday homes or buy-to-lets, older borrowers are faced with an inflexible market that takes into account outdated ideas of what constitutes ‘old age’.

“From a family perspective, those wishing to help out their children in the difficult housing market situation by acting as guarantors on a residential mortgage their child wishes to take out may also find their age being considered as a factor against them, dependent on the lender’s criteria. As pressure increases to help out the younger generation who receive less support from the government and lenders, the ‘Bank of Mum and Dad’ phenomenon will only grow.

“The fact that advice for later life borrowers focuses on lifetime mortgages is clearly ineffective for the market. Change in such a huge industry will always be slow and mortgage lenders will need to ensure responsible borrowing, but if more choice and flexibility was made available to older borrowers and fundamental changes were made to the idea of what determines an ‘older borrower’, this fruitful part of the lending market could reach criteria that suit both lender and borrower.” Garrath Reayer - Partner