UK Finance’s Q4 2023 report on later life mortgage lending reveals a substantial downturn in the market, with new loans to older borrowers decreasing by 37.1% year-on-year.
The total value of these loans fell to £4.1bn, marking a 42.4% decline compared to the same quarter in the previous year.
Specifically, the report shows that new lifetime mortgages advanced in Q4 dropped by 40.1% year-on-year, with the total lending value at £520m, a significant 57.4% decrease from the previous year.
Additionally, there were 255 retirement interest-only mortgages advanced during the quarter, representing a 43.3% year-on-year decline, with the lending value at £26m, down by 38.1%.
The data further indicates that residential later life loans in Q4 accounted for 7.38% of all residential loans, while buy-to-let (BTL) later life loans made up 21.98% of all BTL loans during the same period.
Reaction
Justin Moy, managing director at EHF Mortgages:
“The use of later life lending has changed significantly over the past few years, from an income enhancement option through to an early inheritance, specifically Bank of Mum and Dad home deposit scheme. It is now an essential tool for paying off expensive borrowing and basic living costs.
“With rates reducing in the past few months, the popularity of these products has improved, combined with some major enhancements with product design.
“Shorter ERC terms are certainly more popular, as well as interest-serviced options that give greater flexibilty to borrowers. As we move into 2024 there will be more demand for retirement lending, and the favourable assessment of income will allow more individuals to keep their home for longer.
“Should Stamp Duty concessions stretch to down-sizers, this might change the popularity of later life borowing, but now that the painfully expensive 2023 is well out of the way, continued lower rates will help awaken this important market.”
Dan Osman, head of later life lending (Age 55+) at UK Moneyman:
“Q4 2023 was a difficult period with higher rates meaning that aspirational borrowers were waiting and needs-based borrowers were being forced to accept higher rates.
“At the moment we are seeing a release of pent-up demand, which should settle to the similar, and hopefully as consistent, levels of business from earlier in 2023.
“With many lenders recognising the need for different payment options, lifetime mortgages are really coming into their own for those without the ability to look at alternatives.
“People are more willing to look at servicing the interest and products designed around this from the start are becoming very popular.
“That being said, more of our cases are still going down the conventional, high street route with lenders that have a flexible approach to age rather than with RIOs where there is still work to be done.”
Ben Perks, managing director at Orchard Financial Advisers:
“Later life Lending is a rapidly growing industry. In years gone by people used this for frivolous spending to enjoy retirement or medical needs, but enquiries now are more about day-to-day living.
“Later life lending products have become more borrower-friendly and we are seeing more enquiries from the baby boomers who need to ease the strain financially.”
Gareth Davies, director at South Coast Mortgage Services:
“Later life enquiries have transitioned from being ‘want-based’ to ‘needs-based’. People are needing to reassess their borrowing due to their mortgage being at the end of the term, or because they are struggling financially because it’s gone onto a high SVR.
“The flexibility around later life products can be very attractive and it has to be considered as part of normal retirement planning nowadays.
“From a consumer perspective, it’s vital that people speak to someone with access to all areas of later life lending though, and not just equity release.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“The increased cost of borrowing continues to put some people off equity release, but the state of the country’s economy means that more older homeowners need the product, keeping demand higher than it ordinarily would be in these conditions.
“The cost of living has pushed up the need for additional finance in retirement as many people look to increase their incomes.
“Also having an effect is the cost of borrowing, increasing mortgage payments for older people. Clearing this debt with a form of borrowing not requiring repayments makes a big difference to some households. As rates come down in 2024, demand will spike as the conditions of necessity are still there.”
Simon Webb, managing director of capital markets and finance at LiveMore:
“It is indicative of our still-turbulent market that, despite an ageing population and an increase of later life mortgage products available, we’re seeing this sharp decrease of 37% in loans to older borrowers in Q4 2023 compared to the same quarter in 2022.
“That said, borrowing was unusually high following the 23 September 2022 Stamp Duty Land Tax (SDLT) increase to thresholds, when the over-55s realised they could tap into the equity in their property.
“When we see these types of figures it rings alarm bells about the potential increasing number of mortgage prisoners in the UK.
“Interest-only mortgages can help mortgage prisoners who can’t meet affordability criteria as well as those with interest only mortgages due to mature but have no repayment plan in place.
“Without suitable products, these two groups of customers would otherwise have to sell up or pay very high interest rates.”
