The changing face of later life lending

Product innovation in the over-55 lending market

Written in line with our editorial policy.

People aged 55 and above are increasingly benefitting from changes in the later life lending market. Providers are recognising the need for product innovation to address shifting trends in people’s financial situation as they approach or reach retirement.

Change in the sector is under way, with lenders offering new ways for people to meet their financial goals through borrowing in later life. In particular, providers are addressing the trend for carrying mortgage debt into retirement.

In this article, we look at what the market currently looks like, recent changes, and what industry experts are saying about possible future product innovation.

On this page:

• What is ‘later life lending’?
• The challenge of taking on a mortgage later in life
• A “blurring” of traditional mortgages and equity release
• Restructuring the later life lending market
• The continuing role of equity release
• Which form of later life lending might be right for you?

What is ‘later life lending’?

‘Later life lending’ typically refers to specialist types of lending specifically for people aged 55 or over. 

In particular, it often refers to equity release, where a homeowner can borrow money without the need to make regular repayments. Instead, the loan plus accrued interest is typically paid back through the sale of their home when the borrower passes away or enters permanent long-term care. Any money left from the proceeds of the sale is available to their beneficiaries. 

The challenge of taking on a mortgage later in life 

One reason some people turn to equity release is that traditional forms of lending might not be available to them. 

For example, a traditional mortgage might be hard to get for someone aged 55 or above. That’s because lenders might be concerned that when an older borrower enters retirement, they will have a reduced income and so may not be able to keep up monthly repayments. 

This is why traditional mortgages for older borrowers may be available only for a shorter term than usual, or they may not be available at all.

A “blurring” of traditional mortgages and equity release

In a recent article in Financial Reporter, equity release expert Victoria Clark talks about changes in people’s finances over recent years. She points out: “Owning a property outright at retirement age is no longer a given, and… working for longer and carrying mortgage debt past the age of retirement is now the norm.”

As a result, she says, the traditional boundaries between the residential and later life lending sectors are “beginning to blur”. Providers are broadening their product offerings beyond equity release and more later life lending options are becoming available.

She mentions retirement interest only mortgages (RIOs). These are like equity release in some ways, including repayment of the loan when the borrower dies or enters long-term care. 

The main difference is that with a RIO, you must pay back the interest on the loan each month. This is an option with equity release (with an interest-only lifetime mortgage) but is not mandatory. You can read our guide to find out more: RIOs vs equity release.

Another innovation Victoria mentions are traditional mortgages that can go well past typical retirement age. The term can sometimes extend as high as the age of 80 or 85. However, these are subject to someone being able to afford repayments, for example by having sufficient pension income in place.

She says: “It is likely the merging of these two sectors [later life lending and traditional mortgages] will continue to evolve even further in the future as lenders seek ways to help make the transition from a residential mortgage to a later life lending product seamless for borrowers.”

Restructuring the later life lending market

Paul Glynn writing in FT Adviser also points to a breaking down of barriers between the two branches of lending: “We cannot think about traditional mortgage lending and later-life lending in a siloed way.”

He continues: “The market must be restructured to allow for a continuum of lifetime lending, so the next generation can seamlessly transition from a residential mortgage to a later-life product without any friction.”

“In an ever-changing market, lenders cannot afford to stand still. They must look at the market, understand its current needs, and design new products to meet emerging demands.”

Paul Broadhead writing in the Mortgage Finance Gazette also believes that flexibility and innovation is needed: “So when the FCA asks us what we are doing about lending into later life, I say we need a partnership between industry, regulators, government and society. We need flexibility to allow new thinking and new solutions to respond to today’s changing landscape.”

The continuing role of equity release

Despite recent innovation in the later life lending sector, and the call for further change, experts point to the continuing relevance of equity release. 

For example, in an article in The Intermediary, Ranald Mitchell of Charwin Private Clients says: “Interestingly, many of the people approaching us didn’t initially plan on exploring equity release, but are legacy interest-only mortgage holders now approaching the maturity of their loans.”

He is referring to people whose interest-only mortgages are coming to an end, and who intended to sell and downsize in order to repay their mortgage, but who are now looking for alternative solutions.

He says: “Equity release mortgages are emerging as a compelling option for those who have kicked the can down the road for decades. The prospect of working into their 70s is impractical, short-term remortgaging is unaffordable, and pensions don’t adequately support retirement interest-only options. Many homeowners are now enthusiastically considering equity release as a viable and attractive alternative to selling their homes.”

Meanwhile, Scott Birman of equity release provider Pure Retirement when interviewed for Financial Reporter also mentions ongoing innovation from equity release providers: “When we look at how the market has evolved, over the years we’ve seen more and more [equity release] products offering things like downsizing and inheritance protection, more flexible lending criteria, and optional repayment options.

“I think the important thing is that, as an industry, we understand these customer trends and feed it into future developments to ensure we continue to meet a wide array of customer needs when they decide that later life lending is something they want to explore.”

Which form of later life lending might be right for you?

If you are exploring your later life lending options, please get in touch for help from one of our selected advisers. They will be happy to discuss your circumstances and options for equity release, retirement interest only mortgages, and traditional mortgage lending.

Call us on 0808 178 3055 and we’ll arrange a free, no-obligation appointment. If you’re unable to talk now, request a call back and we’ll call when it’s convenient to you.

About Richard Groom. A writer with 20+ years’ experience across several sectors including financial services, Richard has a passion for writing clear and simple content on even the most complex of subjects. In his spare time, Richard loves exploring the hills and mountains of the UK on long walks with his faithful cocker spaniel. Follow Richard on LinkedIn