One significant development in the financial services industry since the financial crash of 2008 has been the indecision of the future of retirement mortgage products. With a complete review of the mortgage industry undertaken via MMR, the post retirement mortgage market was almost decimated by the demands of the FCA, as lenders withdrew their products or put a stranglehold on criteria.
Previous generations either chose not to take out mortgages which stretched into retirement, or were unable to find a suitable lender. The end of jobs for life and the emergence of flexible retirement ages through early retirement plans in many industries have meant people have a more flexible lifestyle, often financed by borrowing in retirement.
Holidays of a lifetime, such as world cruises and long overseas trips, or indeed a retirement “gap year” are often financed by borrowing against the main capital asset most couples have acquired across their working life - their home.
Alternatively, people borrowing in retirement may be doing so to carry out work on their home, future-proofing it for their life ahead as opposed to down-sizing or moving into more suitable accommodation.
Changes in the housing market have also been a driver in retirement borrowing. First of all, people are increasingly making their first house purchase later in life on longer-term mortgages, driving up borrowing in retirement. Secondly, retirees, or those close to retirement, are looking to help their children who are struggling to get on the housing ladder.
Although there was some concern that pensioners were squandering their accrued wealth after the government changed the regulations on pension savings, allowing people to draw from their pension funds, the retirement mortgage industry has been quick to look at any issues which needed to be addressed.
The Council for Mortgage Lenders (CML) responded to the Mortgage Market Review (MMR) three years ago with its own review of lending into retirement and lending in retirement. This has meant a tightening of options for borrowers but also a greater sense of security. Importantly, after the review it is the lender’s responsibility to prove affordability.
The CML has said that it sees retirement borrowing as crucial to the mortgage industry and its consumers. In their own report they have stressed support for responsible lending within the existing regulatory framework and that affordability is key whatever the age of the borrower.
In the past few years those seeking advice on retirement borrowing have seen a big growth in offers and products. These range from banks and buildings societies seeking to tap into this sector to companies specialising in equity release improving the range of their services.
Retirees, or those approaching retirement, will probably have many years of experience managing a mortgage, and consequently a solid credit record. As a result, they are now much more attractive borrowers as far as lenders are concerned.
Consequently, the time may be right to look at retirement mortgages, whether for work on your own house, that long-wished for dream holiday or two or to help children with their first house purchase.