It has certainly pricked up the ears of many in the retirement sector and among commentators in the consumer space, however.
Perhaps this is because the data completely dispels the traditional notion of most people paying off their mortgages in full before retirement or pensionable age.
As a result, it highlights a growing cohort of customers taking mortgage debt into later life needing advice on how to best manage their borrowing and which products may be most appropriate for them at various stages of their journey.
Working with the market’s circumstances
Given the long-term trend in house prices relative to earnings together with prevailing interest rates and affordability challenges, you might well argue that many of these borrowers had little choice but to take out a mortgage later and for a longer term if they were to secure the home of their choosing.
With a view of broader sociodemographic drivers, this is not a flash-in-the-pan period in our mortgage ‘history’, but is something that is here to stay.
As a result, advisers across both the investment, pensions and mortgage sectors are going to have to think much more ‘holistically’ when dealing with customers at different life stages.
Housing equity needs to be taken into account within financial planning strategies, through both accumulation and decumulation phases, and mortgage advice is not something that can now end at retirement.
Ageing homeowners
We are already seeing the average age of first-time buyers move into the mid-30s. According to Finder.com, it is now 34 and, while a 25-year mortgage term would finish before the borrower turned 60, those who are taking out the 30-, 35- or 40-year mortgage terms will be well into their 60s and 70s by the end of their mortgage.
That’s without us knowing whether they might need to extend terms, borrow more, or indeed how the UK housing market might perform over such a length of time.
In other words, we will undoubtedly see more and more borrowers taking mortgage debt into later life. In a recent speech at the Building Societies Association’s annual conference, Emily Shepperd, chief operating officer at the Financial Conduct Authority (FCA), stated that while the proportion of mortgage customers over 67 is currently less than 2% of all loans, by 2040 this would rise to 5%, and by 2050 it will be almost 10%.
She observed that lending into retirement is moving from a niche to a norm.
It’s vitally important when we are looking at mortgage options for those moving through mid-life that we are acutely aware of how their wants and needs might change in later life and, therefore, to put in place a strategy for managing their borrowing that can adapt accordingly.
We are witnessing a blurring of the lines between mainstream and later life as the traditional gap between these markets is closed, reflected in the new product choices being offered.
In mainstream, long-term fixed rate products, including retirement interest-only and term interest-only mortgages, have risen to prominence. In the lifetime mortgage market, products that allow all or some of the interest to be served over different durations are gaining traction – products well-aligned with this emerging profile of customers.
Crossing to the other side
It increasingly feels like advisers who have hitherto existed on just one side of the mainstream/later life divide are going to need to equip themselves for life on the ‘other side’ or, indeed, on both sides.
Although the landscape is becoming more complex, the good news is there exists a growing number of resources, support and help for advisers, from Air and others, to develop their knowledge of the product choices available.
For those that wish to advise themselves in this space, sourcing systems, fact-find journeys and suitability report templates ensure efficient and compliant processes can be easily adopted. And for those not ready to take this leap, but who still want to ensure their customers can access the most suitable products available, simple triage tools coupled with trusted referral arrangements can provide good solutions.
There’s no doubting the direction of travel we are seeing. There is a growing need from older borrowers, and regulatory obligations post-Consumer Duty requires all advisers to maintain a wider field of vision of what options may be suitable for their clients – irrespective of their scope of service.
Plus – and a vitally important point to mention at a time when mortgage advisers are working harder than ever and for less reward in an environment where rates are constantly moving, and product transfer volumes are increasing – the commercial opportunity for advisers that fully embrace this segment of the market is clear.
Providing lifetime mortgage advice to customers can be financially rewarding, will deliver positive outcomes for customers and ensure regulatory obligations are met.
Really a win-win situation.
