Gone are the days when you automatically go to a High Street bank to get a mortgage. There is a more diverse range of options these days but this does not mean that more choice is necessarily making it easier for borrowers.
Indeed, it can be a bit confusing as mortgage experts are everywhere. There are online mortgage companies, independent financial advisors, intermediaries etc. and it gets you wondering what is the mainstream mortgage market?
It means that if you are an older borrower or self-employed then there are a range of specialist lenders who offer a deal that the bank might not.
While High Street lenders have consistently provided over 80% of mortgages in the UK, since the financial crisis of 2008 the mortgage market has changed. There has been more, much needed regulation, but the needs of the customer has changed too.
People are working longer and there are more people who are self-employed and they do not necessarily fit the profile that High Street banks are prepared to lend to. They have far more complex income sources and less than perfect credit histories so the demand for specialist lenders has grown.
Data from the Intermediary Mortgage Lenders Association (IMLA) suggests that the value of specialist mortgage lenders’ annual lending has grown by 19% per year since 2009 and figures from the Bank of England show that the specialist residential sector was responsible for around £26 billion in new lending in 2018, around 10% of total gross mortgage lending for the year.
Currently you can get a mortgage aged 82. The move is a result of demand from later life customers. Pete Ball, personal finance chief executive of Together, said the maximum age increase would help borrowers such as those working later in life, people needing finance following a divorce or who are in their 50s and 60s and coming to the end of interest only deals.
At the same time intermediary mortgage advisors are seeing an increase in new mortgage introductions from customers looking for interest only loans. They say that interest only mortgages comprised 20% of new business introduced in the second quarter of 2019, down from a peak of 28% in the second quarter of 2007 but significantly higher than 15% recorded five years ago.
Repayment mortgages made up almost all of the remaining proportion of new business in the quarter, rising from 60% of business in the second quarter of 2007 to 79% now, according to the latest financial advisor tracking index from lender Paragon.
The firm says that it suggests that interest only mortgages continue to offer an effective solution for a substantial proportion of customers where a credible repayment strategy is in place.
However, up to half of older home owners are using equity release to repay debt as they struggle to meet payments, a new analysis from independent equity release advisor Key has found. It says 30% of people are using equity release to repay unsecured debt while 20% are using it to repay mortgages.
And there are concerns that the majority of interest only borrowers hoping for a retirement interest only (RI0) loan to rescue them at the end of their mortgage term face disappointment. A report from pensions and investment company Royal London says that this is because they haven’t saved enough into their pension and so would struggle to meet the ongoing repayments in retirement.
Hundreds of thousands of interest only borrowers will come to the end of their loans over the next few years with no obvious way of paying off the capital balance. They may have hoped that a new interest only mortgage running through retirement would be the answer.
But with official figures showing that around 12 million people are not saving enough even to cover basic living costs after they retire, very few will be able to afford the cost of servicing a mortgage debt in addition. As a result, many will find that they fail stringent “affordability” tests applied by RIO mortgage lenders, the firm has warned.
It is one of those tricky issues, we want easy access to money to buy a home in an employment scenario that is far more complex, we have, rightly so, tighter regulation, but people are living longer and want access to finance related to their property in their 80s.
However, many pensions stop when someone dies or only a modest percentage is passed on to a partner. So a mortgage that was affordable for a couple is no longer if one dies. Pensions have not been designed generally to cover a mortgage. So we do have to ask ourselves if there needs to be more caution in the mortgage market.
Ray Clancy
Editor Property Wire
The content of this newsletter is for subscribers and should not be reproduced without permission.
