It seems to be that you can’t turn on the TV without seeing an advert for equity release. It is currently receiving a huge amount of airtime and column inches which highlights the demand for later life lending, and its potential future growth.
What is equity release?
Simply put, equity release is a scheme through which the asset rich can release funds from the equity in their property. This scheme normally applies to applicants approaching the twilight of their life, although it is not uncommon for the newly retired to participate.
Equity release is highly regulated to ensure that no high-pressure selling techniques slip through the net and the involvement of any offspring is encouraged throughout this process.
After all, the equity is likely to form a major part of their inheritance and they should always have the opportunity to seek alternative methods to fund their parent’s lifestyle.
Some providers also allow the interest to roll up, so there are no monthly payments, and some allow the capital raised to be used as future income.
Alternative to equity release
However, what you don’t see in the adverts or on TV are the alternatives. When coming to the end of a mortgage term, it’s rare to be offered any additional products to stay with the lender as you are ending the mortgage contract (normally 25 years or more).
Generally speaking, many also fail to advise you to seek further advice about remortgaging to another provider. Despite possibly having achieved ‘later life’ status when this term completes, it’s important to point out that a range of borrowing options do remain open.
Even though many high street banks have maximum lending ages of between 70 and 75, there are still a huge number of lenders who will lend beyond this age range.
After all, why should a customer not have access to a mortgage because they have reached a number beyond a ‘normal’ retirement age? We know people are now working well into their 70s and many are deferring pensions until they are needed.
Historically speaking, this is an area which lenders have tended to shy away from but there has certainly been increased activity from a product and criteria perspective over the past 12 to 18 months.
The recent launch of a new range of retirement mortgages from Nationwide Building Society highlights just how closely aligned lending into later life is becoming with the mainstream mortgage market.
With mortgage terms being extended and first-time buyers purchasing their first property so much later than previous generations, it’s interesting to see how a range of borrowers view later life lending.
Research
Research from the Ipswich Building Society found that one in 10 borrowers anticipate being over 70 when they become mortgage free.
Younger borrowers have the greatest expectation about paying their mortgage off at an early age, 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. Overall one in 10 people expect to be over 70 and 66% expect to be over 50.
This data highlights how the recent expansion in mortgage products for older borrowers is a timely one, as well as the importance of good, holistic advice in this lending process.
Building societies
For the right customer, with the right income and right loan-to-value of the property, a normal mortgage is still achievable and not just from specialist providers you might not have heard of.
Many are building societies who have been established for decades, even centuries and are true innovators in this area of lending. They think outside the box, manually assess cases and take a reasoned decision, rather than a computer based ‘tick box’ approach.
They will also consider interest-only options, assuming there is a suitable repayment strategy in place.
Terms and conditions always apply, and specialist advice should be sought as this can be a very complex matter which affects future equity and income, but options are out there if you know how and where to find them.
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