Common sense lending opens up more options for older borrowers

There will always be occasions when borrowers in later life need to borrow against a property, such as wanting to move closer to family or adapting an existing home to better suit their needs.

Related topics:  Blogs,  Later Life
Tom Denman-Molloy | Intermediary Sales Manager, Mansfield Building Society
28th June 2022
Tom Molloy Mansfield BS

However, all too often older borrowers find it unnecessarily difficult when it comes to raising the funds they need.

Research by Mortgage Broker Tools last month found that the over-65s face a much tougher time accessing the mortgage finance required, with a little over a third (37%) of potential borrowers in this age group actually offered the loan size they requested. Compare that with a whopping 75% of younger borrowers.

So why is later life borrowing seemingly so much harder?

Dealing with complexity

There are all sorts of different factors that can play a part in the struggles retired borrowers face, but all too often it’s simply a case of lenders not being open-minded enough to get a proper grasp of the case at hand.

A good example here is the way that income streams are assessed. It’s not uncommon for lenders to focus their affordability calculations on a single income stream for the over-65s, whether that be a salary if they are still in work, or their pension income.

However, the reality is that there are plenty of later-life borrowers who enjoy multiple income streams - for example, the rental income from a buy-to-let investment or a pension which they haven’t started claiming yet - which could and should be taken into account.

For some lenders, the apparent complexity of various income streams is enough to cause them to step back from a case, while others are seemingly incapable of taking all of the facts into account.

I’m pleased to say that isn’t how we handle things at Mansfield. By taking a personal approach, we can include all income sources and are well-placed to respond fairly to those looking for a loan in their later years.

Flexible solutions for affordability

It’s not just income sources where older borrowers can feel shortchanged by the lender's approach to affordability either.

Retirement interest-only (RIO) products fill an important niche for some borrowers, yet actually accessing those deals can be challenging. Little wonder that some brokers are wary about them.

If a couple is looking to borrow jointly, then many lenders will stress test the mortgage against each of their incomes individually. This is a problem should one of the couple have a more significant income than the other - which is very common - as the amount that can be borrowed is greatly reduced.

We wanted to do things differently, which is why with Mansfield we offer an interest-only mortgage, up to age 85, where the borrowers can specify downsizing at a later date as their repayment strategy. So long as there is sufficient equity in the property for the downsizing purchase (we insist on a minimum £150k), there are no such affordability test issues, meaning that the borrowers can get the amount they need, rather than being shortchanged.

It’s not just a case of RIO versus Equity Release for us, it’s about the right solution for the right circumstances to enable borrowers in or approaching retirement.

Understanding borrowers as individuals

Ultimately, more still definitely needs to be done to offer flexible solutions to borrowers in later life. If a lender employs a rigid, tickbox approach to criteria then inevitably there will be some perfectly good borrowers who are excluded.

Thankfully, not all lenders work in this way though. Lenders who embrace manual underwriting will always be better placed to help these borrowers.

At Mansfield Building Society, we like to see the people beyond the profile and with a little common sense, together with an open-minded approach to product availability, we can go a long way to helping older borrowers access the right products.

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