November 14, 2016
Home lenders in the UK face challenges from the country’s aging population with demand for mortgages past retirement age set to rise and needs to be ready to cope with innovation, the annual industry meeting was told.
The Council of Mortgage Lenders’ annual conference in London heard that carrying debt into retirement is a relatively recent phenomenon, but more than a third of all loans currently advanced will extend beyond the borrower’s 65th birthday and the proportion has been rising.
According to CML’s head of policy June Deasy traditional mortgage products remain the main option for borrowers aged between 55 and 69, while take-up of lifetime mortgages are more common in those aged over 70.
She explained that lending to older consumers presents considerable challenges, and firms would like assurances from regulators that they will not retrospectively take a negative view of sensible lending into retirement.
‘Over time, there will be a clearer understanding of the wider effects of pension reform. Meanwhile, the range of financial choices for older borrowers and the provision of services to them from different providers continue to present challenges in co-ordinating the existing advice regimes,’ she said.
‘Looking ahead, we will continue to work with the Financial Conduct Authority (FCA), the Money Advice Service, government and others to help meet these challenges,’ she added.
The conference also heard that innovation needs to be embraced enthusiastically by the home lending industry and that too presents a set of challenges going forward. According to the CML’s head of member and external relations, Sue Anderson, lenders and the FCA must take a forensic approach to analysing the pros and cons of innovation, with careful scrutiny and assessment of outlier practices.
‘The regulator has shown strong commitment to engage with, and be open to, innovation through a range of projects and initiatives. Lenders should see this as an opportunity and increase their engagement with the regulator though this work,’ she said.
Sue pointed out that historically there are many examples of new developments delivering real consumer benefit in the mortgage industry. For example, almost all borrowing was once on a standard variable rate, but the introduction of fixed rate mortgages has helped make financial planning more certain for consumers even in an era in which interest rates are generally much more stable. Today, around 90% of borrowers take out a mortgage with a fixed rate.
‘For its part, the regulator has mapped out a route based on encouraging responsible behaviour by consumers, a proper understanding of their needs and the incentivising of appropriate behaviour. Mortgage funding is now readily available, but more tightly controlled, and innovation needs to work within this context, said Anderson.
‘There are also uncertainties, in the wider economy, in bridging the gap between housing demand and supply, and in lending to vulnerable groups of consumers like older borrowers. But there is also potential for the right kind of innovation to thrive. Necessity can be the mother of invention and many mainstream features of today’s mortgage market were innovative once,’ she added.
The issue of a shortage of homes was addressed at the conference and Stewart Baseley of the Home Builders Federation (HBF) told the conference that he believes the construction sector is on target to deliver the Government’s target of one million new homes by 2020.
He said that the National Planning Policy Framework, although still too bureaucratic and costly, was now delivering permission for 275,000 homes a year and making an important contribution to increasing supply.
The sector was also benefiting from initiatives like the £3 billion home builders’ fund, the £2 billion accelerated construction fund, the promotion of brownfield land and urban regeneration and with more expected in the chancellor’s forthcoming autumn statement while on the demand side, the Help to Buy initiative had made a significant contribution in addressing affordability constraints.
He explained that the construction sector had also responded with 171,000 net additions to the housing stock in England in the year to April 2015 and the HBF was on course to deliver 200,000 new homes a year over the next 24 months.
Basely does not believe that Brexit is a game changer and told the audience that there were no reasons why supply and demand should not be sustained, adding that housing would remain at the top of the agenda, and it would be up to the construction sector to maintain quality and a positive image.
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