It wasn’t so long ago that regulations meant that many mortgage providers struggled to lend to people over a ‘certain age’. In some cases that even meant people as young as 40 or 50 were finding it hard to be accepted for a new mortgage. The concern for the regulator was often not the applicant’s current age but how old they would be at the end of the term and how their financial circumstances might change.
Fortunately, some of these rules have been relaxed and more lenders are now able to offer products to people in these age brackets and above.
This is welcome news, as in a survey we conducted recently, two thirds of (home-owning or soon-to-be home-owning) UK adults said they didn’t expect to be mortgage free until after the age of 50. People in their twenties were particularly hopeful, expecting to have fully paid off their mortgage by 52 years of age, while people in their thirties expected to be 54.
This is a pretty optimistic as a government report shows the average age of a first time buyer is now mid thirties! And here at Ipswich Building Society, we’ve found that first time buyers are also opting for a mortgage term longer than the traditional 25 years, in some cases up to 30 or 35 years. You do the maths: a current age of 34, plus a 35 year term... does not equate to being mortgage free in your early 50s.
Older adults were a little more realistic, with people in their sixties expecting to be paid up by 64. In fact, overall one in ten people expect to be over 70 before they’re mortgage free.
Types of later life mortgage borrower
One of the main factors that encouraged the aforementioned relaxation of the rules, is that some people in this age group have taken out interest-only home loans and although they are able to continue to make monthly interest payments they aren’t able to pay back the capital (or lump sum) at the end of the term.
This group has been thrown a lifeline by the recent increase in products and providers available.
Later life borrowers are, however, a diverse bunch, and so there are a variety of other reasons that people believe they will have a mortgage beyond the age of 50. Many people are now actively making a decision to take out a brand new mortgage at this age to fund a range of pursuits.
The phrase ‘Bank of Mum and Dad’ is a well known one, and indeed, many people hope to help provide for their children or grandchildren with some form of inheritance. Similarly, some people believe they’ll need funds available to provide or cover the cost of care for their aging parents.
Other people are more asset-focused, and are either looking to make improvements to their current home before they retire, perhaps with an extension or a new kitchen, or they’re looking to invest in or make improvements to a second property specifically to retire in.
Of course, getting older doesn’t mean having less fun and some people want to release equity in their home in order to make a leisure purchase, such as taking an extravagant holiday, buying a static caravan for regular getaways, or a motorhome for exploring.
Use our handy flowchart to find out which type of later life borrower you are!
What is 'later life'?
This phrase is widely used within the mortgage industry to describe lending to both single and joint applicants from 50 years of age and over. We found in our research that beyond the immediate industry, there is however some confusion about the definition.
Just a third of people with a mortgage, or those who believe they will have a mortgage in the near future, understand that later life starts at 50. Just over a quarter assumed that 40 year old applicants were eligible for later life mortgages, and over a fifth thought it was 60.
It’s clear that more needs to be done to communicate the facts about borrowing in later life and so we’ve created this ‘Guide to Later Life Borrowing’ to help answer some of the questions on the subject.
We are pleased to have introduced more options and greater flexibility in our later life mortgage range, enabling borrowers to select from ‘Retirement Interest Only’ (RIO) as well as standard residential mortgages on capital & interest repayment, interest only (assuming a repayment vehicle is in place) or part and part.
This later life mortgage key facts table gives a good comparison of each product in general and it’s also included in the guide above.
Anyone requiring clarity about later life borrowing should seek the advice of an independent financial advisor who has expertise and qualifications in this market.
Research undertaken by Walnut Research on behalf of Ipswich Building Society during February 2019 amongst UK adults aged 18+. Correct as at April 2019.