Underwriting approaches will have to become more flexible as our population ages – Cleary

by: Alan Cleary, managing director of Precise Mortgages
  • 13/06/2019
  • 0
Underwriting approaches will have to become more flexible as our population ages – Cleary
The need for borrowers to be given better access to mortgage finance as they age has featured a lot in the press over the past month or so.


There are now 13 lenders offering retirement interest-only mortgages which use the sale of the property upon the borrower’s death or move into full-time care as the repayment vehicle. Nationwide has confirmed it will begin piloting a retirement interest-only mortgage range with existing customers, before extending the offering more broadly later this year.

The arrival of one of the big six to the market can only improve it.


Consider social connections

It’s well known that the UK has an ageing society.

The latest projections from the Office for National Statistics figures show that in 50 years’ time, there are likely to be an additional 8.6 million people aged 65 years and over.

This demographic change will have a huge impact on our country, not least putting a massive strain on the National Health Service, state pension provision and individuals themselves who must find savings to tide them through longer and longer retirements.

It also has implications for how we live and house ourselves, particularly, how we fund our homes and whether or when we use capital accumulated in those homes to supplement our retirement income later in life.

I don’t want to debate the rights or wrongs of retirement lending and equity release here; that’s a question whose answer can only ever lie with the individual.

However, there is a broader social question that the mortgage industry would do well to consider sooner rather than later.


Responsible lending

Analysis carried out by Moneyfacts found that the number of mortgage products available with a 40-year term has risen considerably in recent years.

There were 2,604 mortgages with a maximum term of 40 years in March 2019 compared with 1,096 in March 2014, at which time 35-year terms just took the edge by accounting for 36.66 per cent of residential mortgages.

There has been less reaction to this than one might have expected.

According to UK Finance, with the average first-time buyer now aged around 30 that would mean borrowers repaying their mortgage until the age of 70, later if they were to trade up the housing ladder and need to borrow more.

This could look like irresponsible lending at first glance, though I strongly suspect it is not.

The need for retirement interest-only mortgage lending has been focused largely on supporting borrowers given interest-only deals before the financial crisis and subsequent Mortgage Market Review rules, who have since retired.

However, this is just one contingent of society who we as an industry need to think about.


Flexible incomes means complex affordability

From 2019, the state pension age will increase for both men and women to reach 66 by October 2020.

The government is planning further increases, which will raise it from 66 to 67 between 2026 and 2028.

While this will mean more borrowers in work for longer, and therefore able to afford their mortgage repayments for longer, it will also necessitate more complex affordability assessments.

According to the Office for National Statistics, workers over the age of 50 are most likely to say that part-time and flexible working hours would help them delay retirement, something which is particularly important for those managing health conditions or caring responsibilities.

Develop products and criteria

Clearly, this is going to have big implications for all of us, not just personally but also professionally.

The mortgage market has a commercial incentive to evolve to meet the needs of a changing marketplace, but there is also a social implication for millions of people if we fail to develop our products and criteria in line with the changing profile of borrowers living in the UK.

The fact is, individuals are going to need to borrow against their homes for longer.

They will need to work for longer too, but health is likely to become more of a factor in affordability assessments over the longer term as a result of an ageing customer profile.

Underwriting approaches will have to develop too, becoming more flexible to allow for changing income profiles and joint income assessments for couples nearing retirement or care.

These are big questions facing our industry at the moment, and they require broader answers than simply retirement interest-only mortgages.

It’s important that we don’t leave it too late to have the conversation.



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