Later Life Lending

IN A COUPLE of consecutive editions, a little over a year ago, I addressed the subjects of a) Interest Only Mortgages and b) Lifetime Mortgages. In an effort to avoid the increasingly depressing Brexit saga, and the increasingly desperate pledges from the two remaining candidates vying to become the new holders of the poison chalice, I thought I would write a few updated paragraphs on what is often referred to as ‘Later Life Lending’ (LLL).

With changing demographics, increasing pension age, and advances in healthcare – to name but three factors amongst many, combined with the ever-increasing cost of property purchase – on average, first-time buyers are tending to be older than ever. This can often mean that mortgage lending can stretch longer than used to be the case. The traditional 25-year mortgage term is regularly extended in order to reduce the monthly payments and make the purchase more affordable. Many lenders are increasingly happy to grant terms of up to 40 years or to age 68 (the expected State Pension Age for some), and for those in good pension schemes, up to age 75.

I’m all for flexibility in lending and, heaven knows, it’s vital for some applicants who, without it, would never get on the housing ladder. But with increasing uncertainty in the job market, and a longer time for any uncertainty to manifest itself, comes increased risk.

When I was first leaping into the job market, there were jobs for life: Banks, Building Societies, Insurance Companies, Motor Manufacturing, Local Government, the Post Office (as was) were all considered safe places, where a diligent employee could progress through a career, and end up with a fairly decent pension at age 65 (or 60 for a ‘lady’). The current climate of mergers and acquisitions, cost-cutting, changes in technology, market shifts, (dare I say it) Brexit, and other challenges provide for an employment market with increasing uncertainty. Zero-hours and short-term contracts are increasingly popular with employers, and need to be treated with understanding by lenders.

I have started to see an increase in the number of borrowers who approach me as they are nearing retirement, asking how they should deal with the outstanding balance on their domestic mortgage. Hopefully, most people should have been able to reduce their indebtedness quite considerably during a normal working life, but there are some who carry quite a level of debt towards normal retirement age. Fortunately, more lenders are seeing the market changing and are adapting to it. No longer are lenders discriminating against those who are working past normal retirement age; in fact, some have introduced specialist products to account for it. If applicants fall within the lenders’ criteria, loans can often be written to age 75, with the potential for all or part of the loan to written on an Interest Only basis. Increasingly, Equity Release products are being utilised to repay mortgage borrowing, especially where borrowers are asset rich; but such products become eminently more suitable as the age of the applicant(s) increases. ‘Retirement Interest Only’ (RIO) products can be used, where interest payments are affordable, to bridge the gap between the end of a mortgage with some debt still remaining, and entering into some form of Equity Release contract.

Downsizing is often an option but sometimes an ideal property comes onto the market before the larger one is sold (or sometimes before it is even marketed). New to the market is a short-term lending plan: an interest-only product which nominally lasts two years, but as it has no redemption penalties it can be used for shorter periods. It is ideal for customers who have found a property but for whatever reason are not going to be able to sell their current one first. It will usually be cheaper than bridging and can provide 100% of the purchase price, subject to the lenders’ criteria.

That’s quite enough for now. See you next time. Enjoy the summer.

David Foot

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