Building society review paves way for mortgages for older people
People will be able to take out mortgages well into their 70s, should a review by the Building Societies Association (BSA) be widely adopted.
The review seeks to establish what changes to the framework currently used by mortgage lenders need to be implemented in order to adapt to Britain’s shifting social demographics, with a particular focus on older people.
People are living for longer, while younger people are taking on hefty student debts and servicing increasingly expensive rental property, meaning they are taking longer and longer to get a foothold on the property ladder.
Moreover, with no more default retirement age and divorce coming in higher numbers and at a later stage in life than ever before, many argue that the assumptions the mortgage industry works on are outdated.
The report highlights that by 2034 around a quarter of the UK population will be over 65 (the number currently sits at 11.6 million people), and that half of 25-34 year olds believe they will need a mortgage that lasts into retirement. It also says the average age of an unassisted first-time buyer has risen to 31 – an increase of 3 years since 1995.
All of this points to a population that will seek to make its first step onto the property ladder at an increasingly higher age and, most likely, under mortgage terms that will stretch into retirement – an unprecedented situation for the UK.
The report concludes with nine recommendations on dealing with this, the most straightforward being a review of the maximum age limits for mortgage borrowers, which the building society sector has committed to. It also highlights the need for clear information that empowers older people.
Dick Jenkins, chair of the BSA, said: “We have been working together as a sector to look at this issue and we are making some early recommendations for change today. Some put the ball firmly in our court; others can only be delivered in partnership and a few may require regulatory change.”
Paul Broadhead, BSA head of mortgage policy, added: “As the average age of a first-time buyer continues to increase, borrowing into retirement is becoming increasingly commonplace, rather than a niche form of lending. This report identifies a number of areas that need further attention if we are going to meet the inevitable growth in demand for borrowing into, and in, retirement.”
Julie-Ann Haines, customer director at Principality Building Society, said: “We are aware that people are living and working longer and therefore our customers’ needs are changing. We want to ensure that we can support our customers with their housing needs at all stages of life and by looking at our upper age limit, alongside the rest of the building society sector, we will hopefully be able to support more people when they need us.”
The other recommendations set out in the report are as follows:
- The availability of suitable housing options for older home-owners who want to move to a property that meets their changing needs – making it an aspiration not a chore.
- Better cross-departmental co-ordination to rationalise Government policy on the treatment of older borrower’s housing wealth.
- Delivery of regulation that encourages innovation.
- The provision of clear information that empowers older consumers.
- Working with insurers to develop policies that enable lenders to mitigate the different risks involved in lending to older borrowers.
- Improving the availability of holistic financial planning in retirement.
- The formation of a cross-industry alliance with other bodies focused on the needs of older consumers
- Working towards a mortgage that adapts to the different stages of a person’s life.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.