Whilst dining out with friends in the Cotswolds recently the usual subjects jetted around the lively dinner table.
Brexit, technology, Strictly, latest dramas, the new John Lewis store in Cheltenham, some village tittle tattle and how hard it is for kids these days (!!!), you know the kind of thing.
I told the host I didn’t like the beer, which was not my best move because he showed me his charming other half’s face on the label.
Anyway, I digress, in the course of all this nonsense I was told by a fellow guest how much he enjoyed reading my posts and asked why hadn’t I been active for a while, so, suitably flattered, and buoyed, here I am back at the keyboard.
One of the consequences of the Mortgage Market Review, (How much do spend on fillet steak a week?) was that using the sale of your home as security against an Interest Only mortgage was effectively deemed a big No, No!
Well, times they are a changing for sure.
We currently have over 11.5 million people over 65 and after 2030 that figure will be 17 million and growing.
So, common sense and commercial desire says there will be a need for lending products to keep many of us in our homes.
Of course, many people will have paid off their mortgages and will have no such worries but let me introduce to you the players…
Firstly, those many borrowers who were tempted by the interest only carrot dangled by the Financial grocery store of the 1990s and who are now staring down the barrel of not knowing how to repay their mortgage.
Enter stage right, those older folks who want to help their children climb onto a seemingly every disappearing and harder housing ladder.
Stage left are the downsizers who want one more move but need a mortgage to buy what they want where they want.
The simple facts are that if we are having to work into our seventies then many of us will, for various reasons, expect to have or need to continue paying for our homes.
Many first-time buyers are not and will not be 25-year olds but 45-year olds. That means a 30-year mortgage will be to age 75 for them.
We constantly are told people have a small or no pension. But they will have a home worth more than pension. So, what is out there for them?
Firstly, there are a few building society lenders who are happy to lend late into a customer’s life, interest only on the basis that we all understand that they will downsize.
I have just completed a deal for a customer, a £150,000 loan on a £400,000 house with them having income of £50,000 in pensions. Crucially, there is £250,000 of equity there and so downsizing is possible and very achievable in say 17 years.
Then come the lenders who have launched RIOs (aka Retirement Interest Only) products that are similar in shape to the above, but they have no term. That means the customer won’t have to start worrying as they approach that 17 or 20 or 25 years contract they agreed to. Here is some typical key criteria for a RIO from one of those lenders mentioned:
- To apply, the borrower must be between 55 and 80 years old
- Maximum Loan to Value: 55%
- No minimum equity required
- Demonstrate lifetime affordability through assessment of current and future income.
Finally, in this growing and important space I will leave you with some key facts about Equity Release; in my opinion an important often misunderstood area of later life lending.
Equity Release differs from the above in that mortgage payments are not needed but of course the interest rolls up. Albeit there are some providers out there who do allow clients to make monthly payments to hold the interest owed in check.
The Equity Release lenders will lend a sum that is worked out by looking at the customers age and value of their property.
There are many factors to consider when giving proper bona fide Equity Release advice but for many people it is a safe and acceptable solution which is having a growing influence in the later life space.
Key Fact: if we use an Equity Release Council lender (and I ONLY use these lenders), the borrowers can never go into negative equity. Times really have changed.
Furthermore, their products are becoming ever more flexible and useful.
So, to conclude, later life lending is a growing and massively important area as more and more people need help and the lenders are responding.
Perhaps we need more from the big heavyweight lenders and I am sure they are reacting. Many of them of have a lot of interest only customers who are just drifting now and that elephant in the room must be dealt with.
Demographics and attitudes are changing, and this sector of our business will continue to morph and grow I am sure.
And I promise my lovely host I won’t dis his beer again!