Dave Jones, principal of North Wales Independent Advice, warned that at the moment the later life industry is “badly serving” a proportion of potential borrowers who are being declined because of the rigid approach lenders take towards affordability.
He noted that there have been numerous cases where older borrowers in good health and with solid personal pensions have been turned down for mortgages due to concerns that should the partner with the largest pension – usually the husband – pass away, the surviving partner would not be able to afford the loan.
Instead, he argued that borrowers should be able to take out a life insurance policy and assign it to the lender. This way, should the husband die, the policy would clear the outstanding mortgage balance, ensuring that ongoing affordability is no longer an issue.
He said: “It just needs one later life lender to set this up as a policy and they would clean up with the borrowers who are being badly served by the market at the moment.
“If it was a term mortgage, a term life policy would fit the bill, and if it wasn’t a term then you could go for a whole of life policy. You’ve made the broker happy as well as there’s a life insurance sale in it for them too, and the borrower doesn’t have to sell the family home.”
Would insurance costs prove a barrier?
Paul Flavin, managing director of Zing Mortgages, said that the theory was sound but the potential problem lay in the likely cost of insurance.
He said: “Can you imagine the monthly premium on a whole of life policy for a 70-year-old to cover say £200,000?
“I think this may make the combined mortgage and policy unaffordable. It may work for very small loans but that is then limiting the appeal.”
Stuart Wilson, managing partner at the Later Life Academy, noted that over-50s life cover is “not too costly” for small loans, but warned that lenders may be unwilling to take a legal charge on policies as “premiums could be stopped without a lender knowing and GDPR makes this harder to deal with”.
Bob Champion, chairman of the Later Life Academy, added that this situation is one where equity release should be considered.
He said: “Firstly, should it be considered as an option instead of a conventional mortgage?
“Secondly, although not at a good time, could it be considered on the death of the spouse to enable the widow to continue to live in the home?”
A question of oversight
David Sheppard, managing director of Perception Finance, said the idea seemed like a “good option on paper” but warned the devil would be in the detail.
Sheppard noted that in the days of endowment interest-only deals, the lender would want to take a charge over the policy to ensure it remained under the lender’s control, and also to ensure that the monthly payments were maintained.
He suggested a similar form of oversight would not only be needed but would also bring with it a cost which would inevitably be passed onto borrowers in the form of higher interest rates.
“That said, the later life sector is one that is adaptable to change and this could give them peace of mind to lend when they may otherwise would not,” he added.
A change in attitude towards building
Zing Mortgages’ Flavin argued that the biggest hurdle when it comes to the retirement market is the fact that not enough homes are being built which will appeal to people looking to downsize or who want to move into a property more suited to their age and capacity.
He suggested that the authorities should take a similar approach to that for affordable properties, ensuring that a percentage of new developments are set aside for downsizers.
This would help to “unlock a number of properties where two elderly people are rattling around a five bed detached, have loads of equity but lack disposable income, yet feel they have no viable options.
“If the move from a house to a bungalow meant that money was required then, why couldn’t the life insurance policy be subsidised by the government to assist just as Help to Buy loans are subsidised for new buyers?” he added.