Over the past ten years, the mortgage market in the Scottish heartlands has undergone a significant transformation, with loan terms frequently extending beyond the standard 25 years, resulting in a higher proportion of older borrowers. UK Finance data from Q4 2024 shows that 35,840 new mortgages were issued to UK borrowers in their 50s and 60s, a pattern that is especially significant in our heartlands, where an aging demographic is striving to sustain homeownership.
In Scotland, the share of new mortgages with 36-40-year terms rose to 19.8% for first-time buyers and 18.5% for home movers in Q2 2024, reflecting affordability pressures for those nearing retirement, and with Scotland’s population aged 75 and over projected to grow by 341,300 by 2047, these numbers underscore the growing need for flexible mortgage solutions.
Amid widespread speculation about forthcoming UK budget changes, including potential hikes in inheritance tax, the introduction of wealth taxes such as property or capital gains tax, or reductions in pension tax relief, older homeowners have a lot to think about.
Nevertheless, life goes on and people need to move for many valid reasons and increasingly in their later years. A growing number of those with retirement assets are turning to pension wealth to help fund essential later-life borrowing.
The mortgage industry has already adapted to a degree with later-life lending products like Home Equity Release and Retirement Interest Only (RIO) mortgages, but these are not suitable for everyone. In Scotland, supported housing for older people reached 21,085 units in March 2024, highlighting the need for more tailored mortgage solutions. For the “pre-retirement” group, pension-backed lending remains a largely untapped option.
Pension-backed lending leverages personal pensions, including money purchase plans and Self-Invested Personal Pensions (SIPPs). UK pension assets total £3.8 trillion as of 2023, with the defined contribution market, including SIPPs, accounting for £1.9 trillion. The SIPP segment, valued at £500 billion, is projected to reach £750 billion by 2030, offering substantial opportunities.
Older borrowers often face affordability constraints as traditional lending criteria focus on current income, making it difficult for those individuals to secure standard mortgages despite their wealth. Pension-backed lending offers a solution by leveraging uncrystallised pensions, funds not yet withdrawn, as evidence of financial strength and future repayment capacity.
For instance, a sizeable SIPP, which may hold diverse investments like stocks or property, can demonstrate to lenders that a borrower has significant assets to support long-term mortgage payments. This enables asset-rich but income-light borrowers to access borrowing opportunities that align with their financial circumstances, bridging the gap between traditional affordability assessments and their actual wealth.
At the Scottish Building Society, we’ve already seen how using pensions as part of the underwriting suite of solutions can unlock solutions for borrowers who may otherwise fall outside conventional lending criteria. By evaluating elements like a significant uncrystallised SIPP, we can support later life borrowers who are asset-rich but have low levels of income.
This approach is timely and responsible. Aging borrowers are a UK-wide phenomenon and are one reason why we are seeing these requests grow beyond our traditional heartlands.
Looking ahead, pension-backed lending offers mortgage lenders, especially mutuals, a way to support this growing cohort. As budget speculation fuels demand for debt reduction strategies, pensions provide a practical tool to empower homeownership and financial planning among the older demographic.
Stephen Brown is head of intermediaries at The Scottish Building Society
