Written by Tom Denman-Molloy, Intermediary Sales Manager, Mansfield Building Society
Addressing the needs of later life borrowers has become a key focus for the mortgage market in recent years as the average age of the UK population continues to increase. According to data from the ONS, the average life expectancy for a 65-year old is currently sitting at 20 years, with much of this time potentially spent in retirement.
In the current economic climate where the cost of living is squeezing household incomes, the pension pots of many of these retirees are also likely to be feeling rather constrained. As such, many of these customers are potentially weighing up their options for the future and looking at ways in which to balance their retirement income.
After experiencing years of house price growth, older borrowers may find themselves with challenges over their current cashflow whilst living in a relatively valuable asset.
Unlocking the wealth built up in their homes by taking out a later life lending product in order to raise capital or consolidate debt could help them address their needs.
Considering the range of solutions
For brokers with clients looking to manage their retirement income, understanding how a later life lending product works could prove to be a useful tool in helping their clients with their financial planning needs.
There are a range of lending solutions available for those borrowers looking to capital raise during or approaching retirement age. Later life lending solutions such as equity release or retirement interest only (RIO) mortgages are available for those aged 55 and over that benefit from having no maximum age limit.
Yet they aren’t the only options available and brokers know only too well of some of the potential pitfalls these products present, such as the affordability constraints with RIO. Given some of the restrictions these can present, more conventional mortgage products may still be suitable to help later life borrowers.
At Mansfield Building Society, for example, we offer capital raising and debt consolidation remortgages up to age 85 on our standard residential range up to a maximum 70% LTV. The money raised can then be used to consolidate the borrower’s existing debt into one single and more manageable payment, or to raise funds to carry out home renovation, or even to help a loved one onto the property ladder.
Borrowers can take out the loan on an interest only basis too, as long as there’s a repayment vehicle for the capital, and we can accept property downsizing as an option when there’s enough equity left to buy a reasonable quality alternate property in the locality.
These types of mortgages can be a useful tool as borrowers can raise funds to support their retirement needs while paying just the interest on the mortgage each month.
Supporting the financial needs of an ageing population
Remortgaging can be a solution that enables borrowers to leverage their assets to manage their debt more effectively or to support their retirement funding needs at a time when household incomes are squeezed.
By downsizing at the end of the term, there’s the potential to put existing assets to work, with a secure repayment vehicle that supports the changing needs of later life borrowers. For example, recent figures from Savills shows that homeowners in England and Wales could unlock an average of £305,090 by simply moving from a four-bed to a two bed home.
The financial needs of our ageing population are a viable opportunity and by working with lenders that can support retirement borrowing with a range of criteria, brokers can find flexible solutions among some familiar names.
