Older borrowers are being forced to take out expensive equity release mortgages as mainstream lenders tighten their criteria for those who want to extend their loan into retirement, brokers warn.
Over the last month, Leeds Building Society, Skipton Building Society and Newcastle Building Society all cut the maximum age on their standard mortgage ranges from 80 to 75. In May West Bromwich Building Society cut its maximum age to 70 on its standard mortgage range.
Leeds has also pulled its entire ‘Lending into Retirement’ range of products, aimed at borrowers typically aged 60 and over, which had no maximum age limit.
Leeds says it has decided to change its criteria for older borrowers after it used up the tranche of funding for its Lending into Retirement range.
John Charcol senior technical director Ray Boulger says demand for mortgages in later life has always been there but the recent spate of changes in this sector reflects the need to ensure affordability under the mortgage market review. He says the fact several lenders are pulling out or tightening their retirement mortgage criteria puts those left in the market under greater pressue, creating a domino effect.
Boulger says: ”There are three ways lenders remaining in the market can approach the increased business flow from this sector. One is to tighten their criteria to restrict the business coming in, second would be to raise interest rates and the final option would be to pull out of the market altogether. It seems like most have either taken the easy final option, or are gearing up to do so.”
Trinity Financial product and communications manager Aaron Strutt says the changes are hurting older borrowers.
He says: “These changes from lenders are basically forcing older borrowers to take out more expensive equity release mortgages. I think lenders are pulling out because there are so few alternative options for them and more applications are coming in than the lenders want to receive.
“Speaking with some of the more regional building societies that are lending to older borrowers, they have been saying they are absolutely inundated with applications from older borrowers. One of the underwriters told me they can actually pick and choose from the applications they are receiving at the moment because of the sheer volume.”
Strutt adds: “These older borrowers are stuck. For some people, the situation is really getting desperate. Every time a lender knocks five years off their maximum age it just makes it harder for a lot more people.”
There are still lenders in the retirement market with either higher maximum ages or no maximum at all. Mansfield Building Society lends to borrowers up to the age of 85 while National Counties and The Vernon Building Society have no limit on age.
But these societies cannot cater to everyone, and the result seems to be that older borrowers are being pushed toward potentially more expensive equity release mortgages instead.
Age Partnership equity release technical manager Simon Chalk says there has been a direct correlation between more stringent lending criteria for older borrowers and an increased volume of equity release enquiries.
Chalk says: “It is certainly true to say the equity release sector is the net beneficiary of providers in the mainstream market tightening up their criteria.
“We are seeing more enquiries from people who are either in the position of wanting to repay an existing loan or simply wanting to borrow a bit of money, but are unable to demonstrate to the satisfaction of mainstream lenders that they are able to make their repayments. This increase in activity has been happening visibly over the last two to three years.”