Depending on where borrowers are on the property ladder, they have very different needs and circumstances.
These needs are driven in part by the phase of life that the borrower is currently in (e.g. first time buyer, raising a growing family, nearing retirement etc). But they are also impacted by wider demographics trends (growth in the gig economy and self-employment, marrying and having children later), external macro-economic pressures (house prices and interest rates), and regulatory changes (affordability requirements and new pension rules) to name a few.
A cocktail of these combined means the difference in needs between younger and older borrowers has widened dramatically in recent years. Market commentary usually focuses on first-time buyers, and rightly so - the industry has made progress here through
products like Help-to-Buy and family-guarantor mortgages. For those further up the ladder, however, there has been less innovation.
The percentage of the UK population aged 65 and over increased by more than 2% in the 10 years between 2006 and 2016, and almost 4% between 1976 and 2016. That’s an additional 2.1 million adults who are over 65 years old with a further 2.5 million expected by 2026. Life expectancy for UK males has increased from 71 years back in the 1980s to just under 80 years today.
This is of course hugely positive, but financially it translates into retirees needing to fund an extra decade of life. So the impact of rising house prices over the last few decades means older homeowners are now increasingly wanting to release property wealth to finance these extra years.
In parallel, pension incomes are likely to fall as we see the closure of final salary schemes in favour of defined contribution schemes and relatively low contributions into new auto-enrolment pensions.
The backdrop of increasing demand for later life funding and smaller pensions has resulted in a growing demand for solutions to lend into and during retirement.
While we’ve seen the number of new equity release products rise, the reality is that for many customers this product will not solve their issues. Especially those that need them most, like for example borrowers on an interest-only mortgage that is coming to the end of term and needs to be repaid.
Lenders need to start thinking more creatively about long-term adaption and offer more individually tailored solutions for later life borrowers. For example, higher maximum age limits, longer fixed rates, and more affordable retirement interest-only products. There are no easy solutions here but specialist lenders are in a strong position and have an increasing role to play.
If you would like to learn more or have any thoughts on this please feel free to email me at vicki.blog@kensingtonmortgages.co.uk
Vicki Harris has 20 years of experience working in challenger financial services brands, working across asset management, banking and specialist lending. She is Chief Commercial Officer of Kensington Mortgages, the UK’s leading non-bank specialist mortgage lender.