The value of new later life lending in the first quarter of the year came to £4.3bn, a decrease of 8.5% compared to the same period last year, a report has found.
According to UK Finance’s later life mortgage lending update, there were 28,840 new loans advanced to older borrowers in Q1, a drop of 11.7% year-on-year (YOY).
The report found that there were 5,060 new lifetime mortgages advanced in Q1, a fall of 30.1% on the same period last year.
The value of this lending stood at £410m, a decrease of nearly a third compared to Q1 last year.
On the retirement interest-only (RIO) side, there were 284 loans advanced, a slight rise of 1.4% on the same period.
The value of RIO lending stood at £28m, an increase of 16.7% compared to Q1 last year.
Residential later life loans in the first quarter made up 7.9% of all residential loans, and buy-to-let (BTL) later life loans accounted for 22.5% of all BTL loans.
Longer mortgage terms could impact later life lending
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said that later life lending was falling, but “still casts a significant shadow over our retirement planning”.
She continued: “Having to find the money to pay housing costs in retirement can put further pressure on a budget that may already be under severe strain. The most recent data from the HL Savings and Resilience Barometer shows only 39% of households are on track for a moderate retirement income as defined by the Pensions and Lifetime Savings Association.
“This puts a single person’s living costs at just over £31,000 per year and a couple’s at £43,100. This is already a stretching target to reach, but these figures don’t include rental or mortgage costs. This means the reality of a good retirement income could be even more remote for many people.”
Morrissey said that some of this lending will be for BTL mortgages, and so the costs, in theory, should be covered by tenants.
However, the rental market is “under severe strain right now, with landlords increasingly opting to walk away as costs mount”.
“Difficulties finding tenants could also leave retired landlords with a big gap in their income that needs to be filled at short notice,” she added.
Morrissey said that, while there had been a fall in lifetime mortgages, which made up £410m of new lending and decreased 30% YOY, it “shows equity release is still playing a real part in people’s retirement plans, though we don’t know whether this is being done to fund things like home renovations or people are using it to boost their income”.
“The overwhelming volume of new lending comes from residential lending – so house purchases and remortgaging. Of course, some retirees will repay their mortgages relatively quickly post-retirement, but these figures show over £440m comes from borrowers aged over the age of 70.
“There’s every sign that, as time goes on, this problem is going to mushroom, because those getting onto the property ladder in their 30s now are taking even longer mortgages. Some will be able to work later and use the extra cash to meet these outgoings, some will have windfalls during their working life to help pay off lump sums, but others face difficult retirement spending choices in an effort to make ends meet,” she explained.
Later life lending fall ‘no cause for alarm’
Ben Waugh, managing director at More2life, said that the overall volume of later life loans had fallen, but this was “aligned with wider market behaviour and is no cause for alarm”.
He continued: “Given the current stubborn interest rate environment, some advisers appear to be waiting for rates to fall. However, given the prevailing market conditions, this could be a risky strategy, as there is no guarantee that rates will return to the historic lows seen before the 2022 mini Budget.”
Waugh said that, as the number of 35-year mortgage terms continues to grow due to affordability challenges, there will be more borrowers taking a mortgage term extending beyond retirement.
“With that in mind, it is more important than ever for advisers to consider all options for borrowers over the age of 55, including lifetime mortgages. And in a dynamic and ever-changing market, with new hybrid and payment term lifetime mortgages available, it is equally important customers seek expert advice to secure the right outcome for their circumstances,” he added.
Anna is currently the deputy editor for Mortgage Solutions and editor for Specialist Lending Solutions. She has worked as a journalist since 2019, having secured her Gold Standard NCTJ diploma from News Associates in a fast-track six-month course.
She started her career as a report at specialist publication The Insurance Insider covering a wide range of areas before joining Mortgage Solutions and Specialist Lending Solutions in 2021.
In her role, she helps put together and structure the news agenda for the day and writes up press releases, reports, interviews, analyses and exclusives across both titles. She also commissions blogs for Specialist Lending Solutions and hosts online masterclasses and in-person events across the business.
She has been shortlisted for three journalism awards, which include BIBA Journalist and Media Awards Scoop of Year Award in 2020, Headline Money Mortgage Journalist of the Year Award (B2B) in 2022 and 2023.
Prior to being a journalist, Anna worked in ecommerce across Snow + Rock, Cycle Surgery and Runners Need websites, and before that worked at specialist financial PR firm Rostrum.
In her spare time, Anna enjoys reading, seeing live music, and cooking for friends and family. When she gets a chance, she also enjoys hiking, skiing and indoor rock climbing.
