If anyone is looking for a comprehensive review of this issue and the potential solutions then I would highly recommend the Council of Mortgage Lenders’ (CML) recent report, ‘Retirement borrowing: reality, perceptions, projections and potential’.
Clearly, this is a lender-focused document, and some might say that it is the process adopted by many lenders which has resulted in the range of difficulties older borrowers are up against. I think there is a certain degree of truth to that, and I believe a number of lender representatives would agree that in the early stages of the MMR, there was a certain over-egging of the regulatory pudding which resulted in borrowers many years away from retirement not being able to get the finance they wanted.
A straightforward approach
Since then, most lenders have adopted a far more common sense approach to delivering on these borrowers’ needs, but that doesn’t mean that the issue has gone away. In fact, as the CML report outlines, this is a particularly complex series of problems that do not just involve the ability to secure and pay off a mortgage during retirement, but actually involve the entire sphere of financial needs in retirement. There is a need for more holistic advice structures and product solutions that cut across many different areas, such as borrowing, pensions, savings and equity release.
One of the important suggestions around retirement borrowing and the ability of individuals to look after their loans during that period of their life, involves the notion that we cannot look at these needs in isolation. Indeed, the ‘silo’ approach to retirement is certainly not the best option so, for example, both mainstream and residential lenders may well need to work more closely with equity release providers, for example. As the CML points out, there may need to be a fundamental shift in terms of innovation which offers a smooth transition especially for those with interest-only mortgages. The CML suggests that a flexible capital repayment and interest-only roll-up product for the 50 to 75 age group, would be a welcome addition to the market.
Alongside this, within the paper there are calls for a standard definition of what retirement actually is – which seems such a simple starting point and one that you might think already exists, but does not. It is also looking for changes to MCOB so that, again coming back to the interest-only ‘time bomb’ that still exists, a lifetime mortgage will become acceptable as a repayment strategy for those with such a product.
Joined-up thinking
Overall, this is an issue that covers a wide variety of disciplines and will need joined-up thinking. On the advice point alone, there could in the future be far more co-operation between for example, mortgage and equity release specialists, plus of course your traditional financial adviser and those who are purely focused on later life advice needs. The CML suggests that the current PensionWise guidance offering should be broadened out to cover far more areas such as housing wealth, which seems an entirely sensible inclusion.
This co-operation at an advice level may well be the starting point for the industry because it’s likely that as stronger relationships are built, the ground will be laid for product solution suggestions that can cover a much wider span of needs. I also believe that a simple focus on age is not the way forward. As the CML also points out, the health of individuals regardless of age can vary a lot and therefore a marketplace that is dominated by, if you’ll pardon the pun, age concern is not going to be as fit for purpose as one that also focuses on health.
The good news is that a momentum has been built and there now needs to be cross-industry action to co-ordinate ongoing responses and to deliver a market which does not produce negative consequences for those seeking finance into retirement. Advice is clearly at the heart of this and those advisers who can work together and cover off the many bases required are likely to do very well in this brave new world for the older borrower.
