With the number of consumers aged 65 and over expected to increase by 1.1 million by 2020 and nearly one in seven individuals set to be aged over 75 by 2040, the ageing population is one of the major social factors that is shaping the future of financial services in the UK.
Last month, the Financial Conduct Authority (FCA) unveiled a new report titled ‘the Ageing Population and Financial Services' which aims to identify who older consumers are, how they make decisions, what products and services they need to use, and whether they are able to access them. The report also highlights that while older consumers have diverse needs and preferences and there is no ‘one size fits all’ solution, there are some specific issues and barriers that are more relevant for older consumers.
Responding to the report on behalf of the Financial Services Consumer Panel, Sue Lewis said: “Older people want what everyone else does: to get the financial products and services they need at a fair price, and to have open and transparent dealings with firms. Yet their needs and aspirations are likely to be different from younger generations, and the problems they encounter are different, too”.
Across the board, financial products and services appear to be designed for an ‘average’ consumer. The older demographic in particular is too often painted as the 'baby boomer' generation, enjoying the fruits of their labour and good pension pots at the expense of younger people. However, the report tries to offer some other suggestions about different types of groups, too.
How does an ageing population affect mortgage lending?
Mortgages are one of the most significant financial products an individual will ever have in their lifetime and, historically, borrowers would aim to pay off their mortgage by retirement, but the report also showed this is rarely the case in today’s society. In the 1980s and 1990s, first-time borrowers were getting their foot on the ladder much earlier, and as a result mortgages were also paid off earlier. Today’s borrowers are faced with higher house prices, more bills, and more debts than ever before; and the mortgage process is typically starting much later in life, meaning some may never own their property outright.
The paper encourages the industry to follow suit and adapt with the times. Paul Broadhead, Head of Mortgage Policy, Building Societies Association, is quoted:
“We must respond as an industry to reflect the changing needs of consumers. This will include an increasingly inter-generational approach to home ownership, as parents and grandparents borrow to release some of their housing wealth to support the younger generation. It is the combination of multiple factors that will drive greater levels of mortgage borrowing in later life”.
For some older consumers, a great proportion of wealth is stowed away in property - and some may want or need to make use of equity release in order to financially support themselves in later life. It is therefore essential that the necessary products and services are available in the mortgage market to support an ageing demographic throughout the entirety of their lifetime.
Borrowers have diverse financial circumstances and needs - access to credit and borrowing varies depending on affordability and access to income, at present and in the future.The report asks questions of lenders and looks at the issues older borrowers in particular may face, both today and in the future such as:
● Digital and financial exclusion: While the rise in technology benefits many organisations and consumers, it can present challenges for some older consumers who are perhaps less connected to the online world. It’s important that digital exclusion should not automatically lead to any form of financial exclusion.
● Upper age limits: Many older consumers report that they have been turned down for a mortgage, without being given a clear reason as to why, often citing upper age limits as their perceived reason.
● Regulatory risk: Some lenders believe that there is a challenge in complying with the additional requirements of some mortgage products, such as equity release.
Improving strategies leads to improved outcomes
The FCA report serves as an important reminder that the industry needs to continuously review and adapt its strategies in order to meet the ever-shifting demands of its consumers. Services should steer clear of short-term wins, and ‘box-ticking’ approaches, and instead focus on continuous strategic evolution, whilst placing the customer at the heart of product design. Ipswich Building Society is already working towards assisting older generations with mortgage borrowing; we welcome the report’s sentiment and will be challenging ourselves to further improve the ways we help older borrowers and all the other groups of people who have been categorised as mortgage misfits for far too long.
We are proud to be one of the mortgage providers that undertakes manual underwriting and lending, taking the time to review each individual application in its own merits. This gives all borrowers a fair chance for their application to be assessed, including the older demographic.