Real Estate

Mortgage lending to older UK borrowers slumps

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Mortgage lending to older UK borrowers slumped in the last three months of 2023, as higher interest rates led to an affordability squeeze for over-55s.

The number of new mortgages taken out by older borrowers — aged over 55 — fell by 37 per cent year-on-year in October, November and December last year, according to data from trade body UK Finance. The value of this lending was £4.1bn, down 42 per cent.

Mortgages for house purchases, or remortgages, were down 21 per cent, while new lifetime, or equity release, mortgages were down 40 per cent.

Mortgage brokers said older borrowers had been hit by the impact of higher house prices and interest rates. Many are having to focus on paying off their mortgages instead of considering taking on a new one.

Older borrowers are also cutting back on taking out mortgages for discretionary spending.

“Previously, older borrowers may have used [mortgages] for home improvement, travel or to help a younger family member get on the property ladder,” said David Hollingworth, associate director at L&C, a mortgage broker. “If the cost of that borrowing is rising, that kind of borrower may pause for thought.”

Due to high interest rates, some older borrowers are “cut out of the market completely” as they are unable to qualify for better-value loan to value offerings, according to Ray Boulger, manager at broker John Charcol.

“Maximum loan to value is quite a bit lower than two to three years ago,” he said. “Some people who could have chosen a lifetime mortgage now can’t because they don’t have enough equity.”

Mortgage lender Perenna, which offers rates fixed for 20 or 30 years, says the market is “fundamentally ageist”, with older borrowers suffering from limited choice when seeking a mortgage later in life.

“Concerns about mortgage affordability are particularly prevalent among later life borrowers, who often face end-of-term age-related restrictions from lenders when trying to remortgage or secure a new mortgage,” said Perenna chief executive Arjan Verbeek. “The current market, dominated by short-term fixed teaser rates, does little to support this demographic.”

The Bank of England began incrementally raising its base interest rate at the end of 2021 from 0.1 per cent. It has since climbed to 5.25 per cent. According to Moneyfacts, the average rates on a two-year and five-year fixed mortgage are 5.69 per cent and 5.27 per cent respectively.

Appetite for retirement interest-only (Rios) mortgages also plummeted, with just 255 sold in the fourth quarter for a total value of £26mn — a 43.3 drop compared with the same period last year.

Aimed at older borrowers, Rios are paid off in the event of their death, or when they move into long-term care or sell their house. The borrower is obliged to pay only the monthly interest until that time.

Although borrowers can achieve a higher maximum loan to value in the Rio market, many are unfamiliar with the niche products, which are more expensive than mainstream mortgages.

“For Rios to become more popular they need to offer more competitive rates,” said Boulger.

In the UK Finance figures, buy-to-let loans or remortgages were down by 53 per cent.