The UK has witnessed a significant decline in mortgage lending to older borrowers, notably those over the age of 55. This group has been particularly hard-hit by an affordability crisis, spurred on by soaring interest rates and escalating house prices, leading to a substantial decrease in the number of new mortgages being taken out.
A Sharp Decline in Borrowing
The last quarter of 2023 saw a dramatic 37% year-on-year fall in new mortgages for over-55s, with the monetary value of these loans plunging by 42% to £4.1 billion, as reported by UK Finance. Both the number of mortgages for house purchases or remortgages and new lifetime or equity release mortgages experienced significant drops, 21% and 40% respectively.
The Impact of Rising Costs
Older borrowers are finding themselves in a tough spot, primarily due to the double whammy of increased house prices and interest rates. As a result, many are prioritising the repayment of existing mortgages over the pursuit of new borrowing. This shift marks a departure from past trends where mortgages were often leveraged for discretionary spending, such as home improvements, travel, or assisting younger family members onto the property ladder.
David Hollingworth from L&C Mortgages notes, “Previously, older borrowers may have used [mortgages] for home improvement, travel or to help a younger family member get on the property ladder. If the cost of that borrowing is rising, that kind of borrower may pause for thought.”
A Market Unfriendly to Older Borrowers
The tightening of the market is particularly pronounced for those seeking better-value loan to value (LTV) ratios. According to Ray Boulger of John Charcol, a brokerage firm, the maximum LTV available today is significantly lower than it was just a few years ago, locking some potential borrowers out of the market entirely due to insufficient equity.
Perenna, a mortgage lender that offers long-term fixed rates, has criticised the market for being “fundamentally ageist,” highlighting the limited options available to older borrowers. These challenges are compounded by lenders’ age-related restrictions towards the end of a mortgage term, making it difficult for later-life borrowers to remortgage or secure new financing.
Interest Rates and Their Effects
The Bank of England’s decision to raise its base interest rate from 0.1% at the end of 2021 to 5.25% has had a ripple effect across the mortgage landscape. The average rates on two-year and five-year fixed mortgages have climbed to 5.69% and 5.27%, respectively, making borrowing significantly more expensive for all.
Retirement Interest-Only Mortgages Take a Hit
The market for retirement interest-only (RIO) mortgages, designed for older borrowers with repayment triggered by death, moving into long-term care, or selling the house, has also suffered. Sales of RIOs plummeted by 43.3% in the last quarter, with only 255 mortgages sold.
Despite offering a higher maximum LTV, RIOs remain a niche product, unfamiliar to many and priced higher than mainstream mortgages. For RIOs to become a more attractive option, competitive rates are essential, says Boulger.
Broader Market Downturn
The downturn has not been limited to mortgages for older borrowers; buy-to-let loans and remortgages have also seen a significant reduction, with a 53% decrease in activity.
Conclusion
The current climate poses significant challenges for older borrowers in the UK, with affordability concerns at the forefront. The combination of high interest rates, stricter lending criteria, and a market less accommodating to their needs has led to a marked decrease in mortgage uptake among this demographic. As the situation unfolds, the need for more competitive and accessible mortgage products for older borrowers has never been more critical.