The later life lending market comes of age

The later life lending market comes of age

Duncan Buchanan, Banking Director, Hampden & Co:

"Recent figures published by UK Finance, a trade association for the UK banking and financial services sector, showed that the ‘later life’ mortgage sector had a very strong year in 2021. There were 187,120 new mortgages to borrowers over 55 years of age completed, with total lending in the year of £28.1 billion. Compared with 2020, this represented an 11 per cent increase in volumes and a 22 per cent increase in the value."

The ‘later life’ market has become one of the most competitive areas of the mortgage sector, and one in which Hampden & Co is seeing strong demand.

One of the key points we emphasise to our clients is that, in terms of later life lending, there are a number of options for older homeowners, such as traditional equity release or an interest-only retirement mortgage. If people are borrowing out of choice rather than necessity, retirement mortgages represent a very competitive means to access capital.

In the UK, many older high-net-worth clients are often living a full life and are less inclined to downsize from their family home. However, as property price inflation continues to outstrip salary increases, they see younger members of their family struggling to get a foot on the property ladder – and they want to help.

Traditional equity release mortgages can be attractive for those who need to raise money for their retirement, but they come with risks and caveats. The interest rolls up, meaning you pay interest on interest, which can prove significant as it eats into the equity of your property. Indeed, if someone taking out equity release in their 60s lives into their 90s, there may be nothing left to hand on to the next generation when their life comes to a close.

An attractive alternative is a retirement interest-only mortgage, sometimes referred to as a RIO, where the borrower retains the certainty of protecting their equity. With this mortgage, they may initially pay a higher rate of interest than is charged on an equity release product, but they will probably pay less interest in the long term.

Furthermore, for many of our clients, the interest they pay on a retirement mortgage is likely to be lower than the return being generated on their investment portfolio, making it a better choice than cashing those investments in. If good financial planning is all about protecting wealth, this type of mortgage fits in well.

A number of the clients that have approached Hampden & Co about interest-only mortgages have initially been declined by mainstream lenders. They may have taken out a mortgage several years ago and are then instructed to repay the balance at maturity.

They tell us that when they have asked for a mortgage extension, they are told that they are too old – even though they may still be working and have a good income.

It’s interesting to note that the growth in later life lending in 2021 was, said UK Finance, the highest annual volume and value of mortgages to borrowers over age 55 since 2014 when data began to be collected. While the end of the Stamp Duty holiday in September 2021 hit demand towards the end of the year, this still points to retirement mortgages fulfilling a growing need.

The key thing to consider is that there are options and not all lenders have the flexibility that Hampden & Co offers.

Duncan Buchanan is a Banking Director at Hampden & Co

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All borrowing is subject to status and is available to persons of 55 or over. Interest to be paid monthly via a servicing account at Hampden & Co. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE.