With the ageing UK population on government’s agenda, corporates are also taking notes. Statistics reveal that in 50 years’ time, there will be 8.6 million more people over the age of 65. These projections are a combination of current statistics and events, such as longevity and a later start to a family. While some individuals sport a longer career, others retire for as long as their working career. What this means for financial institutions, however, is an opportunity to capture a market previously off bounds as the older market start reworking their budget to accommodate a mortgage repayment.
Banks Coming To The Retiree Party
While the ageing population plays a big role in the increase in age criteria for nineteen of the UK’s top banks, they also need to consider the likelihood of an older generation’s ability to service the repayments of the loan. For starters, a retirement income is a stable source of income. There is also the possibility that their potential client is still very much a part of the workforce and working well beyond retirement age. Brexit played a number on the workforce in the UK, and for many, this means de-retirement. A large number of the workforce now consists of over 65s, as those below 65 are hardly enough to fill the employment gaps.
Property Is An Income-Generating Asset
With the hundreds of thousands of homeless families in the UK, affordable housing is high on the list of priorities. For ageing landlords, this creates a new opportunity as properties properties are in high demand, pushing rentals up. For banks, this means creating a whole new type of client – the retirement property mogul. Santander has increased its maximum age from 75 to 85, allowing them access to a bigger marketplace. While there are plenty of other finance options open to clients, it’s the mortgage that appeals most to financiers. There are three reasons why the mortgage reduces a lender’s risk despite the later age of the borrower:
- The rental income provides the “ability to repay” aspect
- The property itself acts as security for the loan
- Banks can request, as part of their condition of acceptance, that the applicant applies for life cover that will, in turn, be ceded to the bank in the event of death
New Products For Retirees
Nationwide recently also joined in on in on the retiree game, with a number of new mortgage products for retirees. According to the financial institution, these products are designed to provide more stability for retirees in terms of cash flow and income. It’s also a means to manage the equity in the properties. While interest-only mortgages have been around with the group for some time, they extended other equity options to retirees as well, such as a tax-free portion. For retirees, a further benefit is the fact that they don’t have to be Nationwide customers to apply.
For retirees, there are more mortgage options for those over the age of 65 than ever before. Investments, cash flow management, and income generation are all on the table in the mortgage space once again.
What People are Thinking
Landlords aren’t happy about the move to reduce deposit caps. In fact, the NLA are concerned that such “a reckless move could force more landlords out of the market”. According to NLA CEO Richard Lambert: “A six-week cap is the lowest landlords find acceptable. Does the government really not realise that if landlords don’t think the deposit covers the risk of damage or unpaid rent, they will be even more cautious about who they let to? All this will do is make it harder for tenants with poor credit ratings or who want to have a pet to find a suitable home. This is clearly a political move aimed at the renters’ vote. It is not a policy for business.”
David Smith, the Policy Director for the RLA, chimed in on the issue as well, stating: “Ministers need to address the problem of tenants failing to pay rent every bit as strongly as rogue landlords. It is not unreasonable that landlords should have the security to know that funds are available to cover the unacceptable practice of those tenants who do not pay their rent at the end of the tenancy and, in some cases, leave the property in an unacceptable state.”
Though the new Tenant Fees Bill has not yet been passed, it has completed the passage through the House of Commons. In the coming months, the bill is expected to be considered and passed through the House of Lords. Property industry groups continue to lobby the government to extend the deposit cap, fearing that the new proposal will affect their profit margins.
Author: Sandy Kenrick
Sandy Kenrick swapped a fast-paced career as business banker for the insurance industry. Long hours and a new family quickly led her to look beyond the world of finance. As a work from home mom, Sandy now gets to do what she loves. Much of her work still involves finance and business, but when that mid-afternoon sun swings around it’s time to switch off the laptop, pour a glass of wine, and enjoy her growing family.