Overcoming challenges in the later life market - it's all about education

We have an aging population in the UK, with the number of adults aged over 55 estimated to reach 24 million by 2030. With this shift comes a demand for borrowing in later life.

People need or want a mortgage in later life for a multitude of reasons. Some may want to keep a debt on their property to help with Inheritance Tax planning, or release equity from their home to diversify income streams, such as a buy-to-let property or portfolio. With the rise in house prices and the high cost of living, many homeowners in later life also want to help their children or grandchildren to get on the property ladder and are using equity in their home to gift or loan towards a house purchase. The Bank of Mum and Dad was estimated to contribute to 47% of house purchases in 2023 – that’s 318,000 house purchases.

Four of every five mortgages to borrowers in later life are standard mortgages – not equity release. New residential lending where the term extends into retirement now accounts for around 60% of total residential lending. However, affordability for older borrowers can prove to be complicated so it’s important, now more than ever, to fully understand a client’s circumstances and know how their income can best be used. Education is key in not only understanding your client’s situation, but also in the client understanding it themselves.

In later life, flexibility in a lender becomes essential. There are real benefits in using a lender that manually underwrites cases and where brokers can speak directly to BDMs who have direct relationships with underwriters.

What are the challenges?

For lenders, purchase business has slowed and the market is dominated by product transfers and remortgages. Swap rate movement have also had a big impact which has had a major impact on interest rates.

For brokers, affordability is tighter, and the frequent rate increases and product changes have made securing rates harder. However, since the turn of the year, we are beginning to see rates fall again – although they are not back to pre-pandemic levels just yet.

The later life market is not immune to the effect of the cost-of-living crisis. Many of the high street lenders tend to have a ‘computer says no’ approach’, which means older borrowers are often turned away simply because of their age or complicated income.

What does a lender need to know?

To get a successful case through and overcome these challenges, lenders need to know what retirement income, investments or other assets the client has, what their situation is and what they’re trying to achieve. BDMs can then work with underwriters to find a solution.

So often, a broker has come to us with a case that they haven’t been able to place and yet the client is sitting on a wealth of different income streams – they just haven’t realised it.

Conversations to get the information you need

• Pensions

The pensions market has changed significantly over the last decade. It’s important to have a BDM who has a good knowledge of the many different types of schemes that are out there, and who can advise on what the client’s circumstances are as they stand today - and potentially of what they can do in the future.

Do you know what pension provisions your client has? Even if you don’t understand the intricacies of a client’s pension, being able to provide an underwriter with the details can be crucial when looking at affordability. Does the client have a state pension? When are they going to get it? Do they have a defined benefit or a defined contribution pension? Do they have a SIPP? Or a SASS? Do you know when they can claim on it or when they can start drawing it down from?

• Investments

There are a huge variety of investment strategies and understanding what a client’s investments are planned for and how they can be utilised can really help. Do they have company stocks? Perhaps they have a fund that has a spread of different investment within it? Do they have ISAs or bonds. Quite often clients have various pots of money invested in a lot of different places which can all add up to help with affordability.

• Getting hold of the right information

Understanding the intricacies of a client’s background can be tricky. Quite often they don’t fully comprehend what income they have themselves and they’ll really appreciate being guided through their circumstances and the options open to them. Do they know where they can go to get pension information upfront, such as the Government Gateway. Do they know what would happen if a spouse passed away? Do they have a tax advisor or wealth manager they can refer to if needed?

How can a manual lender help?

Manual lenders are used to dealing with the ‘grey’ on a daily basis, rather than looking at numbers in black and white – which is vital with later life lending when affordability can be complicated. BDMs need to work closely with underwriters, involving them in the case before submission so that so they can provide invaluable advice on how different incomes can be used to help affordability.