Independent review and analysis

Lending into retirement: problem not solved

According to the Building Societies Association, the UK already has 11.6 million people over the age of 65 and predicts this will rise to 16 million within 20 years.

The combination of an ageing population and the adoption of no fixed retirement age has meant some people who were approaching retirement want or need to be able to pay their mortgage off much later in life.  Some are facing requests to pay off interest only loans at the end of their term, even though they are still working past their expected retirement date.  Other factors, including rising property prices, which effectively limit options to downsize or refinance (against a background of tightening of lending criteria) and social issues like significant increases in the divorce rate are also contributing to the ‘pay it off later’ mentality.

None of this is a surprise to most people in the market – which is reacting positively to the challenges social changes are bringing.  A number of mortgage lenders have reviewed the upper age limit restrictions at the application stage and are trying to devise products and criteria that will help retain older borrowers, with good payment records, to renegotiate terms.

One area of focus is in the equity release and lifetime mortgage sector.  These are very different products, with different conduct rules, regulatory frameworks and prudential requirements which make it difficult for some firms to get permission to operate in both sectors.  We have been working with a number of lenders in this area, helping them with their own origination and retention strategies.  The lending sector is pulling together to resolve these issues – the FCA has given guidance as to what they consider good outcomes for borrowers in this situation and the CML has also been working with lenders.

We support the drive to ensure that all lenders implement a formal strategy setting out the firm’s policy and procedures for originating new loans and managing those that might not be repaid at the end of the term. This should include a communications plan which encourages the borrower to engage with trained front line staff at the earliest opportunity to ensure a fair outcome.  This issue is not going away despite some commentators dismissing the ‘ticking time bomb’ headlines of a few years ago.  Seeking assistance from independent experts will help – call us to discuss how we can help to ensure a positive outcome for all parties.

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