"Whilst the industry debates these issues, and many others, there can be little doubt that the Genie has been well and truly been released from the bottle as far as later life lending is concerned."
There can be little doubt that the hottest topic of conversation in the mortgage industry right now is lending into later life. Pioneers in the industry have worked hard in recent years to lead the way in product development that offers borrowers in this market the flexibility and choice they are looking for.
Sales of lifetime mortgages continue to increase significantly, but it is still a niche product. Residential mortgages will help grow the later life lending market, as well as compliment developments in the lifetime mortgage sector. However, to grow this market it will take imaginative and brave product development to deliver not only product solutions that meet borrower’s demands, but underwriting skills that are specifically tailored for this customer cohort.
Assessing affordability is key and will require smart technology to help brokers and clients alike experience a smooth process from application through to completion.
The Financial Conduct Authority’s recent MCOB rule changes, following their consultation into the later life lending sector last year, has demonstrated that the Regulator is not only in support of new products and entrants into this market, but is helping lead the debate and shape product thinking. In particular, their findings supported the introduction of a retirement interest only mortgage aimed specifically at elderly borrowers. Allowing lenders to develop interest only solutions for later life should enable many more older borrowers in their 50s and 60s to achieve their goals.
Whilst these developments from the Regulator are very exciting for this market, we (the industry) need to work through a number of things:
1. Definition of an elderly borrower. Some see this as anyone over the age of 55, after all this is the accepted entry age for most lifetime mortgage products and in-line with the Government’s Pension Freedoms, others meanwhile believe the FCA sees RIO mortgages aimed at those in their 60s who might need a life line offered to them as they reach the end of term with their current provider. Others see this as being available to even younger ages, for instance the retired armed forces personnel or investment bankers in their late 40s for example who neither qualify nor want a lifetime mortgage.
2. Clarity as to how lenders determine a ‘life event’, in particular acceptance of death as a repayment of the loan and whether this should be accepted as the default when offering later life lending options such as RIO mortgages.
Whilst the industry debates these issues, and many others, there can be little doubt that the Genie has been well and truly been released from the bottle as far as later life lending is concerned. Key to this is offering borrowers flexible solutions to meet ever changing needs. With no defined retirement date under statute, lenders, such as Shawbrook have to create solutions that will allow our customers to continue servicing a loan well into retirement.
There can be little doubt that for borrowers, brokers and providers there is a great opportunity to rise to the challenges laid down by the Regulator and consumer to develop well thought through solutions for those in later working life through into retirement. Get this right and the potential for all is great.