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Borrowing in retirement - CML report and next steps

Published: 3 December 2015

The Council of Mortgage Lenders today outlines a range of calls to action for regulators, government and the mortgage industry itself to improve the market for older consumers who legitimately wish to borrow in retirement to meet various needs.

The CML's report Retirement borrowing: reality, perceptions, projections and potential clearly shows quite how complex and interconnected the issues are when lending to older borrowers. The overarching message is that improving this market in a meaningful way requires significant collaboration both inside and outside the mortgage industry.

However, it is clear that the will to improve this market exists - one of the most significant achievements of the work to date goes beyond the production of this report itself, and lies in the fact that so many different participants have come together with a common will to address the issues.

Those involved range from mainstream lenders and lifetime mortgage providers (from across the spectrum of CML membership), to pension providers, financial advisers, compliance experts, groups representing older customers, retirement housing providers, think tanks, other trade bodies, and regulators. Keeping this momentum going is the most important output from our work at this stage. 

This report follows the publication last month of externally-commissioned research on the demand for retirement borrowing. Within the report itself, we identify a range of next steps and calls to action.

For lenders and the CML these include:

  • Continuing to work with the intermediary sector towards a more seamless advice framework. In particular, we will work together to identify how to improve "hand-off" arrangements between different advisers when this would best serve the customer's individual needs.
  • Monitoring emerging evidence about how pension freedoms are interacting with the mortgage market - including whether access to pension pots is feeding through to some customers repaying their interest-only mortgages, for example. This knowledge can be used to inform future action.
  • Exploring the potential for a market in the 50-75 age group for a product that can flex between capital repayment and interest-only rollup over time, and also the potential for further product innovation for the 65-74 age group.

We also ask the Financial Conduct Authority to consider:

  • Addressing how regulation could encourage a more holistic approach to mortgage, lifetime and investment advice in the round, which is what many older borrowers really need.
  • How different reasons for borrowing should be reflected in sales channels - health may sometimes be even more important than age in determining the quality and suitability of products and the sales advice that accompanies them.
  • Working with us to provide a standard definition of retirement.
  • Changing some of the Mortgage Conduct of Business rules to allow, for example, for a lifetime mortgage to be an acceptable repayment strategy for interest-only mortgages.

We ask the Prudential Regulatory Authority to consider:

  • Ensuring that its work on defining acceptable models for Solvency II, involving requirements for matching assets, does not lead to an unintended consequence of withdrawal of products or failure to introduce products that would benefit consumers.
  • Ensuring that any risk management strategy and derivatives employed to hedge the risks of new retirement lending products (such as morbidity, longevity, asset price and interest rate, as well as lack of current cash flow) achieve hedge accounting treatment. If this does not happen, it would act as an important technical disincentive to product development. This is a specific concern arising from IFRS 9.

We ask HM Treasury to consider:

  • Introducing tax relief on professional advice received at retirement, to encourage take-up.
  • Ensuring that the Financial Advice Market Review is mindful of the need for joined-up, multi-disciplinary advice for older consumers.
  • Encouraging Pension Wise to include substantial questioning around housing debt - the CML would be happy to help with scripts.
  • Drawing on how other governments in an international context have sought to address the housing and borrowing needs of older borrowers, and consider (for example) whether state-backed guarantees of the type used in the US and South Korea might be worth exploring.

Commenting on the work, CML director general Paul Smee said:

There is no silver bullet to address the complex issues involved in the housing and financial needs of older borrowers, but it is hugely significant that so many willing participants from across the mortgage industry and beyond are now collaborating to try to put this jigsaw together.

We should push forward on the more straightforward issues - such as improving advice hand-offs, using the Pension Wise trigger point to address housing and debt issues, focusing on good product design, and a regulatory focus on avoiding negative unintended consequences on retirement borrowing.

A truly holistic approach will take longer to emerge. But there is enthusiasm to work together to address the issues. We must maintain this momentum. Through collaboration we should aim for consistently good advice, sensible housing solutions, and products that offer the financial outcomes that many older consumers are looking for, without disproportionate risk to lenders and advisers.


Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK. There are 11.1 million mortgages in the UK, with loans worth over £1.3 trillion.

2. Last month we published a new independent research report commissioned by the CML - Consumer demand for retirement borrowing - shedding light on the drivers and constraints affecting consumer demand for retirement borrowing. 

3. Earlier this week we published CML analysis on older borrowers and options for borrowing: Lifetime borrowing: a maturing market.

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