By Mark Bogard, Family Building Society

Article first published in Society Matters magazine, Dec 2024

The Family Building Society exists to serve the needs of modern families – the way we live today. Today’s older generation saw paying off their mortgage as one of life’s big events, like passing your driving test or getting married. Mortgages weren’t for old people. That sense is evolving.  Because it needs to.

People are living longer. Some are working longer. The state retirement age is rising in any event. Life has got more complicated and there is more for older people to spend their money on and a greater spread of demands on it – both positive and more necessity driven. And many of these older homeowners have more equity in their homes than they ever thought they’d have. Which, of course, is the very problem that their grandchildren have as potential first-time buyers. 

We will do a new mortgage for a 90-year-old. A significant proportion of our book is lending in and into retirement. The regulators see it as what we do and have come to talk to us about our experience and how we ensure good outcomes for customers. Politicians too. 

His Majesty’s Treasury see later life lending as critical to help people pay for later life care. Hence the Retirement Interest Only mortgage, for example. But this is a can that is endlessly kicked down the road. Look at the response of the public to Theresa May’s mooted dementia tax.  But people can only spend the equity in their home once. 

We see grandparents helping grandchildren with a deposit for a home or helping with educational expenses. We see grandparents focusing on themselves, spending money on cruises for example.  They self-style as the SKI generation – Spend the Kids Inheritance. We’ve seen a later life mortgage to fund a houseboat purchase. And a 70 year old borrow £400,000 on a very valuable, unencumbered house, to buy for his recently married 27 year old wife a new kitchen. The Treasury need to understand that this money can only be spent once and people would rather spend it on nice things, earlier, than later, on care.   

The later life lending that we do competes with the Equity Release Mortgage market. This product is suitable for many, but the maths of compound interest means that it is best delayed as long as possible. As Einstein said "Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it." So having a “normal mortgage” for as long as possible can save a family of lot of interest. But there is a real and troubling distortion in the market. Advisers get a fee that is significantly greater for selling an equity release mortgage than a normal mortgage. And there’s no affordability test to work through. We hope that the FCA addresses this issue, which may drive poor outcomes, in some cases. 

We also see that some older people need to manage their investments and their debt holistically. When I started out in financial services many advisers could cover both. The evolution of their regulation means that they almost never do nowadays. That is a step backwards. Especially when debt can be used to reduce IHT. 

So, as this market inevitably and certainly expands, there is more that product providers, advisers and regulators can and should do to optimise outcomes for older borrowers.    

To find out more, visit https://www.familybuildingsociety.co.uk/mortgages/later-life-mortgages

The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.