Alan Cleary - Group Managing Director
It seems the days of people retiring at 65 and enjoying their golden years mortgage-free are becoming an increasingly distant dream for many people.
Paying off the mortgage by the time they’re 65 has been the financial goal for generations of homeowners, but recent research from Hargreaves Lansdown has found that nearly 16% of householders now say they will either be aged over 65 by the time they pay off their mortgage or will never clear their loan. This comes after the FCA predicted earlier this year in its annual Sector Views report that 40% of borrowers who took out a mortgage in 2017 will be aged over 65 when their mortgage matures.
So why has paying off a mortgage by the time people reach 65 becoming more uncommon? Well, for starters the average UK property now costs nearly £235,000, meaning aspiring homeowners have to save for a large deposit, while wage increases are failing to keep up with rising living costs.
It means that we’ve got a growing generation of people who are unable to get a mortgage until later in life. In fact, according to the Office of National Statistics, the average age of a first-time buyer has risen by almost 10 years since 1997. More than half of home buyers are now aged 34 or older, compared to just 26 in 1997. And as they’re buying later, they’re looking to purchase bigger and more family-friendly, but ultimately more expensive, properties.
So it’s no surprise to read that many of these buyers are now looking to take out products offering mortgage terms that run beyond the historic 25 year standard term to spread the cost of their repayments. Moneyfacts reports that longer-term mortgages are increasingly becoming the norm, with around 57% of residential mortgages now coming with a 40 year term.
And it’s not just younger borrowers who need mortgages; the number of older people looking for a mortgage is on the rise too. People are working for longer so the later life lending market (borrowers aged 55 and over) is becoming an increasingly important part of the sector. UK Finance figures show the sector grew by nearly 14% last year, with more demand from older borrowers for residential mortgages and equity release products.
There are a myriad of reasons why people are working for longer – to keep active, maintain social connections, supplement their incomes or top up their pensions. Whatever the reason, these changing demographics aren’t just having an effect in the workplace, they’re also causing changes in the lending market.
It’s always good to see lenders adapting to customers’ changing needs, but what about those borrowers who are struggling to get the mortgage they need on the high street, for example younger borrowers who might have less than perfect credit profiles or older borrowers with complex incomes?
This is where specialist lenders come into their own. Specialist lenders offer a bespoke service which take their individual circumstances into account.
Here at Precise Mortgages we judge every case we receive on its own merits, taking each customer’s unique circumstances into account. Customers can access residential mortgages between 5 and 35 years, with a maximum age of 70 at the end of the term. We’ll even consider customers aged up to 75, subject to underwriter review and stated retirement date.
It’s clear that the market is evolving. With people borrowing later and working for longer, it’s crucial that lenders keep innovating to adjust to customers’ ever-changing needs and ensure they can get the mortgage they need, whether they’re first-time buyers or later life borrowers.
With more than 220,000 properties purchased and nearly £12.5bn lent in equity loans since the launch of the Help to Buy Equity Loan Scheme in 2013*, there are now a growing number of borrowers who are likely to need the support of a financial intermediary.
As interest becomes payable on the government equity loan after the initial five-year interest free period ends, and, in many cases, with borrowers seeing their initial mortgage rate come to an end, Precise Mortgages has enhanced its Help to Buy proposition and now offers homeowners the option to remortgage and capital raise to repay part of their original Help to Buy Equity Loan.
The enhancement is part of the lender’s wider Help to Buy proposition which now gives customers the option to purchase, choose a pound-for-pound remortgage, capital raise to repay part of the equity loan or fully repay their loan.
With a dedicated service proposition, the specialist lenders’ Help to Buy products support customers underserved by the high street, including those with less than perfect credit histories. As Help to Buy capital raising will be new to many intermediaries, they’ve produced a comprehensive guide to remortgaging and capital raising for Help to Buy which can be downloaded from their website.
Group Managing Director for Precise Mortgages Alan Cleary said: “The Help to Buy scheme has been a huge success since its launch in 2013, helping hundreds of thousands of aspiring homeowners take their first step onto the property ladder.
“Our new simple and straightforward capital raising option could help these customers by allowing them to remortgage and repay part of the Equity Loan which will become payable after the initial five-year interest free period ends.”
Source: * https://www.gov.uk/government/statistics/help-to-buy-equity-loan-scheme-statistics-april-2013-to-31-march-2019-england
Alan Cleary - Managing Director at Precise Mortgages
Whether buying a new home or remortgaging to a better deal, the decision about how long to fix a mortgage rate for is one of the most important decisions a homeowner will make.
Are they after the flexibility and lower rates that shorter-term deals can offer? Or are they looking for the security and peace of mind that comes with a longer-term product?
Whichever term product they decide to go for, they’ve probably never had as much choice when it comes to making their decision as they do at the moment.
According to recent research by Moneyfacts, there are now more than 1,500 five-year deals on the market, almost double the amount that there were five years ago. This increase is across every LTV tier and means the split between two and five-year fixed rates is virtually identical, meaning borrowers now have a much wider range of terms when locking in.
And borrowers aren’t just benefiting from choice in the products they can select – they’re also benefiting from some of the lowest rates in recent times. With falling SWAP rates and fierce competition between lenders to attract new borrowers and ensure existing ones don’t drift away to other lenders, rates for five-year products are now almost as cheap as two-year deals, with the gap closing to the narrowest margin since 2012, the Moneyfacts data shows.
Not surprisingly, the choice in longer-term mortgages at competitive prices has resulted in a growth in popularity as customers look to safeguard their rates in a time of uncertainty. Borrowers who traditionally might have preferred a shorter-term commitment may now be looking beyond just interest rate, and instead preferring the stability of a longer-term deal to protect them against any future economic or political changes.
Here at Precise Mortgages we’re always alive to changes in the market. Whether your customer is planning to purchase or remortgage, is self-employed, a first time buyer or looking to buy a new build property, our residential range of mortgages is designed to help them make the move.
We’ve just launched our autumn special range of mortgages which features five-year products for customers who want to lock themselves in to a longer-term product. We calculate affordability according to the repayment method selected, including interest only, part-and-part, and capital and interest options, and we don’t apply a stress test for borrowers. All of our residential mortgages are tiered to meet individual credit histories which means that customers with less than perfect profiles don’t need to miss out on securing the term product they need.
Whatever your customer’s motivation, whether they want to move to a new product, escape from their existing lender’s reversion rate, unlock equity in their property or are nearing the end of their term, now’s a great time to be looking for a mortgage, particularly if they’re after a longer-term product.
Roger Morris - Director of Sales at Precise Mortgages
The bridging finance sector has come on in leaps and bounds in recent years, but I think there’s still work to be done to ensure regulated and unregulated customers are treated fairly.
Whilst regulated loans are secured against a property where a customer or a member of their family will reside and are therefore subject to the same regulation as a residential mortgage, non-regulated products aren’t.
Many unregulated lenders will often advertise products with ultra-low rates and when you see these rates, it’s easy to fall into the trap of thinking that the lowest rate must be the best deal for your customer. However, the devil’s in the detail and when you scratch beneath the surface you’ll often find a different picture. Check how much your customer would have to pay over a 12-month period, including how much they’d have to pay to conclude the loan or if they default. Is the lower rate product actually the cheapest one in the long run? You may be surprised by the outcome.
Here at Precise Mortgages, we aim to treat each and every customer fairly. As a regulated lender, you can expect the same standards whether your customer wants a short-term or long-term product. All of our fees and charges are well set out in our decisions in principle, offer letters and on our website. And unlike some unregulated lenders, we don’t charge high interest rates to defaulting customers, or conceal rates by setting a very high standard interest rate which is discounted if payment is made on time.
Why does all this matter? Well, it matters to customers who might end up paying more for an unregulated loan than they would for a regulated loan, but it also matters to the bridging industry. Practices like this can give bridging finance a bad name, so it’s vital the industry is clear and transparent in the way it does business.
So the next time you’re approached by a customer who needs a short-term loan, it’s worth adopting a ‘regulated’ mindset and investigate all options to ensure your choice of lender and the rate they are offering gives you and your customer the peace of mind you’d get if you were applying for a regulated product.
Alan Cleary, Managing Director at Precise Mortgages
Changes are happening in financial services with new, mobile-only app-based banks launching over the past few years, attracting millions of customers with current account and credit card offerings.
They offer users mobile payments, access to investment accounts, savings accounts, mortgage advice and energy switching all at the tap of the app.
They’ll sweep up extra pennies on expenditure and deposit them into a savings account without you even noticing that you’ve started a savings habit.
They’ve driven large numbers of customers who previously banked solely with one provider to open new accounts that effectively function as a place for discretionary spending.
And offerings such as Zipcar have understood that not everyone, particularly not younger people, wants to buy and own a car; they still want to drive, but would rather enjoy flexible access to a car as and when they need it than take on the financial responsibility of fixed costs.
Renting for flexibility
The same argument is applied to younger people renting for longer. In some ways, and for some people, I buy it.
Renting as a social choice, offering often better-quality and larger accommodation in more convenient locations which can be handed back after a year makes a lot of sense for many people. Particularly when their employment is flexible and or/liable to move location.
But I think the majority of younger people in this country still aspire to own their own homes. Property remains one of those assets that, given time, has appreciated in value fairly reliably.
There is also the psychological and emotional need that most people have for the stability of a roof over their heads that no landlord can unsettle.
This is why we chose to support the government’s Help to Buy scheme three years ago and it’s why we have recently broadened our service to those buying in Scotland, as well as those who took their initial loan five years ago and are now needing to remortgage.
Part of our role as a lender in this ever-evolving economy is to support first-time buyers who decide they do want to get a step onto the property ladder.
This scheme has done this, with government statistics showing that of the almost half a million completions made using one or more of the Help to Buy schemes since 2013, nearly 90 per cent have been by first-time buyers.
But it would be complacent simply to sign up to offer this scheme and ignore the changes that our society is going through.
Realities of a modern borrower
How first-time buyers save, what they spend their money on and how they live before they make that first jump into homeownership is changing rapidly – and yet many lenders rely on old-fashioned precepts of what a good mortgage borrower looks like.
We’re living in a world where customers are encouraged to embrace a culture of switching – our car insurance, energy supplier, TV and broadband, mobile phone service, even our house when we’re renters – and it means we have an increasing array of accounts to manage.
The result can often be late payments, especially where first-time buyers are concerned.
They’re more likely to have moved home frequently, running a much higher risk that some accounts will slip through the address change net.
This does not make them a bad lending prospect – it makes them a modern one, which is why we do not rule out borrowers who have suffered a blip in their credit history. It is often just that.
In a world that is so full of change, we need to be constantly reassessing how we look at borrowers.