Advisers have welcomed more variety in the residential mortgage market for older people but are reluctant to consider the products for all their clients, despite calls to do so.
Later life lending - not to be mistaken for equity release or lifetime mortgages - are mortgages that carry extended maximum age terms, allowing people of older ages to borrow money against their existing house or for a new house purchase.
Challenger bank Aldermore, which recently launched a specialist mortgage aimed at the over 55s, said it was a rapidly growing market that was “significantly underserved” by lenders and advisers.
The bank said about two in three people were statistically refused residential mortgages for age reasons, and those missing out were people with interest-only mortgages who have no proper plans to pay them off, or those looking for flexibility with their money in retirement.
The Financial Conduct Authority (FCA) has already recognised the problem around maturing interest-only mortgages and changed its rules around the products earlier this year, now treating them as standard mortgages rather than under equity release standards.
Unlike equity release, residential mortgages don’t require people to seek advice before they can buy them but Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), said he would be “very surprised” if lenders offered later life mortgages without advice due to their similarity.
He called on advisers to consider the opportunity, saying advice was “genuinely required” in this space to achieve better customer outcomes.
Robert Forbes, chartered financial planner at Stadden Forbes, agreed there was a "definite need for these type of products".
He said: "Demand is huge partly because given people live for a long time the equity release option can get really expensive, so this type of thing is a great middle option."
But other advisers FTAdviser spoke to questioned the need for the product.
Alistair Cunningham, financial planning director at Wingate Financial Planning, said: “Why would someone want a term, albeit a longer term, when they could just get a lifetime mortgage or they could downsize?”
Alan Chan, director at IFS Wealth & Pensions, said it would help if mainstream mortgage lenders were to extend their terms to help people with maturing interest-only mortgages, but he denied the market was “in desperate need for innovation”.
Kusal Ariyawansa, chartered financial planner at Appleton Gerrard Private Wealth Management, meanwhile, saw a potential application for people wanting to access cash but leave their pension invested.
He said: “What has amazed me is the number of people who are prepared to pay additional tax in order to access pension money after the freedoms. A repayment plan naturally progresses to inter generational planning with such cases.”
At present later life lending is offered by a relatively small number of specialist banks, such as Hodge Bank and Aldermore, as well as some building societies.
Aldermore’s Charles McDowell believes this is not enough to serve the market although he said the situation has improved in the past 18 months as more smaller building societies came in and the high street lenders pushed up the maximum age limits to 75.
