Added: 18 April 2019
One in ten anticipate being over 70 when they become mortgage free, shows new research from Ipswich Building Society
The current surge in mortgage products for older borrowers is well timed with one in ten current mortgage holders anticipating not being mortgage free until they are over the age of 70*
Average age expected to be mortgage free
Younger borrowers have the greatest expectation about paying their mortgage off at an early age, despite the fact that the average age of a first time buyer is becoming progressively older**; people now in their twenties were most hopeful, expressing 52 as the age when they expect to have fully paid off their mortgage. People in their thirties hope to have repaid in full by 54, but older people were a little more realistic - people in their sixties estimated 64. Overall one in ten people expect to be over 70 and two thirds (66%) expect to be over 50.
Commenting on the research findings, Richard Norrington, Ipswich Building Society CEO, said: “We thoroughly expected younger people to be prepared to having a mortgage later in life because they are buying their first property so much later than previous generations. This is also compounded by the fact that some first time buyers are also opting for a mortgage term longer than the traditional 25 years.
“What we do know is that the perceptions of having a mortgage later in life are changing. Many older borrowers make an active decision to take out a mortgage in order to facilitate moving to their dream property or to undertake home renovations to enable them to stay in the home that they love for longer. Taking out a mortgage later in life can also be an act of benevolence - where older borrowers want to help younger members of the family onto the property ladder for example.”
Reasons to hold a mortgage post 50 years of age
Over a third of people*** (37 per cent) expect to have a mortgage after 50 due to reasons other than reaching the end of their term. The most popular reasons cited were:
- To cover living expenses: 15%****
- Invest in a new property: 13%
- To free up funds to spend on holidays, car etc: 11%
- To extend or make changes to current home: 9%
- Due to changes in employment status/career: 9%
- To give inheritance to children/grandchildren: 7%
- To cover the expense of looking after parents in old age: 4%
Norrington continued: “Lenders are becoming increasingly aware that later life borrowers are a hugely diverse group and are therefore looking to offer a variety of products that meet their needs.
“For those who can afford the monthly interest payments, Retirement Interest Only [RIO] mortgages are becoming an increasingly popular way of extracting the capital tied up within a property. With no upper age limit and no specified term, RIO borrowers can remain in their home***** but use the funds for other purposes such as to pass on to children or grandchildren.”
Understanding of ‘later life’ as a term
The mortgage industry has adopted the term ‘later life’ to cover mortgage lending to people from around the age of 50 and over but Ipswich Building Society’s research shows that more work is needed for the term to be widely understood. Only a third of mortgage borrowers or wannabe borrowers know that the term is associated with people in their 50s and over: 26 per cent wrongly believe age 40 and above constitutes ‘later life’, and a quarter (23 per cent) believing the entry point starts at 60.
Norrington concluded: “It was just a couple of years ago that many providers were reluctant to lend to older borrowers and now they are actively trying to attract this type of customer. In particular, allowing pension income****** to be used for mortgage payments has been a real game changer. However, with these changes comes the challenge of ensuring that later life borrowers are selecting the most suitable mortgage product for their individual circumstances as standard residential mortgages, RIO and equity release all have their various merits.”
Ipswich Building Society has recently extended its later life mortgage range to enable borrowers to select from RIO as well as standard residential mortgages on capital & interest repayment and interest only (assuming a repayment vehicle is in place), giving older borrowers the flexibility to choose a product that best suits their needs. As the Society has a manual lending process, it is able to understand the personal circumstances of applicants which can be extremely beneficial to later life borrowers as it means their application is more likely to be successful than with a provider that has an automated approach.
Anyone requiring clarity about later life borrowing should seek the advice of an independent financial advisor who has expertise and qualifications in this market.