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Older borrowers: why we need a more joined-up approach

Opinion

Published: 7 August 2017 | Author: Jackie Wells

Earlier this summer, consultants Jackie Wells & Associates were commissioned to publish the report, Later Life Borrowing, New Mindsets: Old Silos - The Advice Framework for Older Mortgage Customers.   

In this article, Jackie Wells highlights the difficulties for older borrowers in accessing the information, guidance and advice they need, and says that attitudes among consumers and within the lending industry need to converge.

Many of those in their late 50s and beyond are proud of their achievements in becoming first or second generation home-owners. Owning their home affords a strong sense of financial security, status and control. And because of house price rises, it gives them a sense of wealth that many never expected to have. 

For those who have paid off their mortgage, have an adequate retirement income and sufficient rainy-day funds or investments, their property wealth may well serve as an inheritance for fortunate children or grandchildren. However, as this project now being taken forward by UK Finance demonstrates, it is perhaps only a minority of older home-owners that are lucky enough to have all three of these elements required for a comfortable retirement.

A growing number are arriving at retirement not having paid off their mortgage, not having enough income or without adequate savings – and perhaps all three. For some, financial difficulties are compounded by health issues that prevent them working in later life or require them to modify their homes.

Chart 1: Age at which mortgage ends, 2012-2016

Bar chart when mortgage ends

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“Sam found himself having to take early retirement due to health problems, although his wife still works part time. Rather than paying off the mortgage, they found themselves having to extend the term and move to interest-only. He now finds himself considering equity release as a way of paying off the mortgage and giving him a lump sum to spend as he wants or give to his children.”

From a consumer interview undertaken by Jackie Wells & Associates for the research report Later Life Borrowing: New Mindsets, Old Silos published June 2017

Working through the options

Having to borrow later in life can be uncomfortable and the process may not be straightforward. Later life borrowers often find it difficult to navigate the market and analyse the options available to them. The world of mortgage brokers is not something that many are familiar with but their first and natural port of call, the high street lender, may not be willing to extend them a mortgage and may be unable to provide any help with equity release. Friends and family may not be able to provide any useful insights and may simply warn against borrowing in later life. And, while some will investigate online, the internet is not accessible to all.

Those willing to consider an equity release plan may become aware of providers through advertising and direct mailing by specialist advice firms. However, until recently, these firms tended not to deal with traditional mortgages, leaving consumers wanting to make a comparison between the two options with few places to go.

"Sarah and her husband live comfortably but she is worried about their pension funds (in drawdown) running out and, with interest rates so low, not having enough to pay for house maintenance or repairs. She is considering borrowing against the house again and would consider equity release. None of her friends know much about equity release but she recognises that people are ‘warming to it’ more than ever before. She feels that it’s perhaps the most important decision that people make at this time of life."

From a consumer interview undertaken by Jackie Wells & Associates for the research report Later Life Borrowing: New Mindsets, Old Silos published June 2017

Operating in silos

Many industry players recognise that they do not currently provide later life borrowers with the tools they need to compare across their options for borrowing against their property. Different products, risks, funding models, sources of advice, and methods of remuneration and regulation all serve to make the industry operate in two distinct silos – one for residential mortgages and another for equity release.

Lending to those in later life is often more complex for both lenders and advisers. The financial affairs of borrowers are more complicated, the sales process is extended, provider research is less streamlined, compliance and regulatory costs are higher, and conversion rates are lower than for traditional mortgages.

The research for our project suggests that, first and foremost, consumers need more help in navigating the market for borrowing in later life. People need help in finding an intermediary or lender who can help them evaluate the options available to them and the risks to which those choices may expose them.

Advice and guidance

Ultimately, later life borrowers would be best served by being able to access information, guidance and advice on the full range of products, on the high street or online, but there are a number of other steps that government and industry can take. The new single financial guidance body being developed by the government should have a key part to play comparing options and signposting consumers to information and help.  The industry could support this with the provision of generic information and guidance that crosses the two parts of the market.

Increasingly, later life borrowers look likely to need products that transition between traditional and lifetime mortgages. Traditional mortgages may also need to adjust to the new realities of retirement finances and changing working lives.

More than anything, the different attitudes to borrowing in later life that exist among consumers and industry need to converge. Recognising that borrowing in later life is about supporting retirement finances rather than acquiring a home will do much to bring about that alignment.