Born in 1926, at the age of 88 our constitutional monarch continues to attend engagements around the world. Across the UK there are many other people working well past the historic retirement age of 65.
Employment figures from the Office for National Statistics for April to June 2014 show there were just over 1 million over 65s in employment. The number in this age-group who are self-employed has more than doubled in the past five years to reach nearly half a million.
And while the average life expectancy of a male after the age of 65 is 18 years for men and 21 for women, many are going much further. More than 7,500 received congratulations cards from the Queen last year for hitting their centenary. In 2013 13,780 people were estimated to be over the age of 100, with 710 of these estimated to be aged 105 or older. This is up from 7,740 in 2002.
So in the wake of the Mortgage Market Review in April this year there has been growing interest in the potential for the new rules to make it increasingly difficult for elderly borrowers to get a mortgage.
The actual wording in the Mortgage Conduct of Business, requires lenders to take account of future changes to income and expenditure, such as retirement, stating that:
• Where the term of a mortgage extends beyond the date a customer expects to retire, the FCA expects lenders to take a prudent and proportionate approach to assessing the customer’s income beyond that date
• The closer a customer is to retiring, the more robust the evidence of the level of income in retirement needs to be
• Where retirement is many years in the future, the FCA says it may be sufficient merely to confirm the existence of some pension provision for the customer by requesting evidence such as a pension statement.
The key change has been this assessment of post-retirement affordability which brings with it many challenging questions. What happens if the borrower dies or their mental and physical capacity rapidly declines? If they have a job, what if they are made redundant?
There are also additional difficulties around having to assess the income generated by a potential pension pot, especially with the recent pension freedoms announced by the Government in the Budget last year.
There are a range of lender practices in this space. Some have specific caps, others review case by case. The Mansfield Building Society for example announced last week that it will provide residential loans up to the age of 80 and 85 years of age on buy-to-let.
There is no denying that as a nation we are getting older. Population trends, employment patterns and pension changes are gradually reinventing what retirement can be.
So some serious work into the whole question of lending into retirement is in order. Where we need to be, the role for lenders and how we get there is something which will occupy us in the coming months. It’s a key challenge not just for the financial services sector, but the country as a whole.
Paul Broadhead is head of mortgage policy at the BSA
