Later life lending is starting earlier for a new generation – Hale

However, they can be an excellent guide to emerging trends and future opportunities, and this is true of the later life lending and wider mortgage markets. 

Basic facts, including the average age of first-time buyers, the growing proportion of first-time buyers aged 40-plus, the percentage of 55-64-year-olds still paying mortgages, the average retirement income, and the ratio of average wages to average house prices, tell a compelling story. 

For instance, the average age of a first-time buyer is 36, one in five first-time buyers are 40-plus, one in four 55-64-year-olds still carry mortgage debt, and the average house price stands at nine times the average wage. As a result, people are borrowing until later in life, and traditional assumptions about retiring mortgage-free are being challenged. 

The average retirement income is £18,148, according to the Office for National Statistics (ONS), which is just over £5,000 above the £12,800 threshold to achieve a ‘basic’ retirement, as calculated by the Resolution Foundation. This underscores that retired people need to maximise every asset, including property, if they are to achieve a comfortable and perhaps even a fulfilling later life. 

Notably, 42% of mortgages arranged at the end of 2023 extend past state pension age, and more than half of borrowers choose 30-plus-year mortgage terms. For example, a 36-year-old first-time buyer opting for a 35-year term will be paying a mortgage until age 71. 

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Demographics and mathematics point to a new later life lending market – and a new mortgage market. 

The new later life lending customer and opportunity 

A new generation of later life lending customers is emerging alongside traditional equity release customers in a market showing strong signs of recovery. 

According to the latest Equity Release Council figures, total lending increased by 16% in the fourth quarter of last year – the third successive quarter of growth and the first time that three quarters of growth have been recorded in two years. 

Around half (48%) of later life lending borrowers are aged 55-60, and more than 73% are aged 55-65. Traditional equity release customers aged 70-80 are still important and represent a £2bn-3bn annual market. 

These older borrowers have benefitted from decades of house price growth and usually own their homes outright. They tend to release property wealth to enhance their standard of living in retirement or to gift money to relatives. 

In contrast, 50-60-year-olds have seen limited house price growth and may still carry debt as they build up to retirement. They need later life lending products to help with retirement planning, including being able to manage debt in a flexible and efficient way. 

These customers represent a potential £40bn market, and demographic trends suggest there are more of them on the way as people buy homes later and need to manage debt into retirement. 

Just to add to the mix, the historically low interest rates over the last 15 years have masked a growing gap between house prices and wage growth. The return to more typical rates is likely to mean a huge shock, with the costs of servicing debt increasing significantly and remaining out of step with earnings. 

For these borrowers, later life mortgage products will be essential in managing repayments when they retire on a fixed income, especially as fewer will benefit from the generous defined benefit pension schemes enjoyed by the traditional equity release customers. 

Adapting to this new generation 

Recognising that the market has changed is crucial, and being confident in our industry’s ability to adapt is just as important. 

There is a new generation of over-50s carrying debt into retirement, creating a challenge for advisers but also a major opportunity to improve outcomes and help customers use housing equity to achieve a more comfortable and fulfilling retirement. 

Customers do not always see a distinction between traditional mainstream mortgages and later life products, and neither should the industry. 

To ensure positive customer outcomes, we must keep affordability at the heart of the advice process through all stages of the mortgage journey, including and through retirement. As the number of over-50s facing the inevitability of mortgage borrowing in retirement increases, we need to see our industry as a cohesive whole. 

We need advisers to broaden their scope of service and expand their awareness around the options available by employing triage tools and referral models, so customers receive advice and products that match their needs.

As Financial Conduct Authority (FCA) chief executive Nikhil Rathi said in a recent speech at the JPMorgan Pensions and Savings Symposium, “fragmented journeys – treating pensions, mortgages, savings and housing wealth as entirely separate challenges – must become a thing of the past.” 

Between work done by later life specialists, and mainstream mortgage advisers and generalist IFAs or wealth managers, there is a real opportunity to forever change mortgage advice, and indeed broader retirement advice, for the better. 

For this new generation of customers, the mainstream and later life advice sectors need to work collaboratively to deliver upon lifetime borrowing and financial planning needs, from facilitating the first steps onto the property ladder to accessing accumulated housing equity to support retirement income.

Through all stages of life, customers need to understand all the products available to them and be presented with all options that apply.

Advisers must ensure the planning approach and product solutions they recommend really address a rapidly changing set of needs.