Moves to increase upper age limits by lenders have been welcomed by the market.
Many big lenders tightened their lending criteria after the credit crunch, but as the UK’s population ages, and many choose to buy houses later than previous generations, having restrictive mortgage lending age caps is not in the best interests of older borrowers.
But concerns remain that, while publicity around increasing upper lending ages makes lenders look good, it also diverts attention away from underlying and unfixed issues which still affect these borrowers.
Is simply increasing upper age limits enough? Are lenders’ other criteria holding back lending to older borrowers? And what more do lenders need to do to help?
Experts say larger lenders do need to do more, particularly around interest-only lending, criteria changes and affordability pressures for pensioners, and also need to move away from treating upper age limit tweaks as a cure-all.
Computer says no
John Charcol senior technical director Ray Boulger says the first area where mature borrowers are still being held back is interest-only lending.
He says: “When it comes to interest-only lending for older borrowers, some restrictions are applied by the big lenders – there is too much of a focus on the ‘computer says no’ approach.”
One issue is most larger lenders do not accept selling a house as a repayment strategy for interest-only mortgages. With many older borrowers keen to downsize to a smaller home, or wanting to move into a retirement home, this restricts the options available.
Mainstream lenders are also conservative when it comes to lending criteria other than age limits.
For example, Nationwide increased its residential upper age limit to 85 in July, well above the norm for most big lenders.
However, the change only applied to the lender’s standard residential mortgages, had maximum loan sizes capped at £150,000 and a maximum loan-to-value ratio of 60 per cent.
Another example is Santander, which increased its upper age limit for interest-only lending from 65 to 70 in February.
But Boulger says the lender could still do more to help older borrowers.
He says: “Santander’s announcement that they’ve upped the age limit for interest only borrowers is great, but they also need to change their criteria.
“They still require £150,000 minimum equity in the property, which should be more flexible for those not looking to trade down.”
London & Country Mortgages associate director David Hollingworth says: “These things are not exactly throwing open the doors to welcome older borrowers. But the flip side to people saying this sort of thing is ageist is you are lending to more vulnerable borrowers.”
Chadney Bulgin mortgage partner Jonathan Clark says any relaxation of criteria is a good thing.
But he adds: “A lot more could be done to avoid these clients being unnecessarily forced into hybrid or even full-blown equity-release-type mortgages that, as we all know, can trigger some very generous procuration fees for brokers happy to service this market.”
Pension freedoms pile-up
Another issue for older borrowers is a clash between tighter affordability checks required by the Mortgage Market Review and the greater flexibility around pension pots brought in by pension freedoms.
With more pensioners choosing to draw down their pots, lenders view this as a greater affordability risk than the highly predictable income given by an annuity.
The problem is worsened by many employers scrapping final salary pension schemes, which also gave a very predictable guaranteed income to retirees.
Both the Council of Mortgage Lenders and the Building Societies Association say pension freedoms are an issue when it comes to lending to older borrowers. BSA head of mortgage policy Paul Broadhead says: “Lenders are generally quite comfortable lending against an annuity or a defined benefit pension, but what about a borrower who plans to keep their pension invested?”
Raising the bar
Despite the praise heaped on larger lenders for raising their age limits, the fact these exist at all can be an issue for older borrowers.
A BSA spokeswoman says age limits “often have the effect of hard stops in practice which to a degree make other lending criteria irrelevant”.
So what does the future hold for older borrowers? While the elderly are still underserved by big lenders – the top five residential lenders still control around 65 per cent of the market; 33 smaller building societies will lend past 80, with 14 of those having no upper age limits at all.
And in the mainstream market, help is on the way. Following the BSA’s Lending Into Retirement report, published in November 2015, the trade body has set up a working group to further tackle the issue of lending to older borrowers.
The group includes the CML, the Treasury, the FCA and Age UK, and is chaired by Broadhead. A priority is to look at affordability assessments for older borrowers, especially relating to pension freedoms.
The CML has also commissioned research into demand for advice and guidance for older borrowers.
When it comes to lending to older borrowers, the mortgage market has done much to help, including increasing upper age limits. But it is clear more needs to be done to help resolve the issue.