Pause in base rate cuts highlights mortgage shock risk for older borrowers

Market-leading later life lending platform Air is warning that the pause in expected Bank of England base rate cuts is compounding the risk of mortgage shocks for older borrowers and the need for advisers to consider all options.

Analysts are forecasting the base rate – currently at 4% – may now not be further reduced this year over worries about inflation with the result that older borrowers remortgaging from fixed rate deals will face much higher monthly repayments.

The Bank of England* estimates borrower remortgaging this year on average face an increase in annual costs of £1,752 – around £146 a month – due to the end of historically low fixed rate deals. The average five-year rate in 2020 was around 2.4%.

Air says older borrowers could be particularly vulnerable as they may struggle to be accepted for the most competitive fixed-rate deals due to changes in circumstances such as giving up full-time work.

That can mean older borrowers currently benefiting from low fixed-rate mortgages may be transitioned to and stuck on standard variable rates which can be as high as 8% with huge knock on effects on monthly repayments, Air warns.

It is urging advisers to consider all options available for older customers including modern lifetime mortgages which allow all, some or none of the interest to be served as well as allowing flexible capital repayments so that monthly costs can be reduced and managed. 

Will Hale, CEO of Key Advice & Air said: “Even moving to a new fixed rate can see monthly costs increase significantly for many customers and that applies even more if older borrowers are moving to standard variable rates.

“Many older customers will be particularly at risk as their circumstances may have changed since they last remortgaged. It is vital that all customers over the age of 55 do not default to a new product with their existing lender but instead talk to an adviser who can consider all their options.

“If they have a comprehensive conversation with an adviser they can be recommended a product that is appropriate for an individual’s specific needs, wants and circumstances. Advisers who do not include all later life lending products within their scope of advice should still have a wide field of vision to ensure that products such as modern lifetime mortgages are still considered even when affordability on mainstream products can be met. 

“For customers over the age of 55, affordability should no longer be seen as a binary concept and lifetime mortgages that allow customers to serve some or all of the interest, and/or make ad hoc capital repayments can be a suitable option. These products come with added protections such as certainty of tenure and a no negative equity guarantee and, for many customers, can support more financial freedom, a better lifestyle and overall improved outcomes – even if cost of borrowing may be higher.

“Lifetime mortgages have moved well beyond a product of last resort and having a trusted referral relationship in place with a later life lending specialist can allow all advisers to deliver a holistic proposition and good outcomes for their older customers.” 

 More information on Air is available from the website: https://airlaterlife.co.uk/