Vaccines, statistics and later life lending

"2021 could be the year RIO mortgages and other later life lending products provide some breathing space for those with maturing mortgages without the means to repay the outstanding balance."

So how quickly will the vaccines have an effect on everyday life?

90% of Covid deaths occur in over-65s, so once the over-65s have been vaccinated, statistically, we could be beyond the worse. Over-65s count for 25% of the population, and account for over 16 million people. At the time of writing deaths are running at over 500 a day, so on a linear approach vaccinating the over-65s should reduce that to closer to 50 a day.

We don’t however know if the vaccine prevents onward transmission. If it does it will be a game changer, but it pays to err on the side of caution.

Many of the over-65s will, to various degrees, have been shielded from the virus. Once vaccinated, they become viral transmitters without becoming unwell. Social distancing and viral hygiene will therefore become more important for some time.

Why do I say that? While 90% of deaths are among over-65s they account for just 63% of Covid hospital admissions. Again, at the time of writing hospital admissions are running at over 2,000 a day. If the virus continues to circulate at its present rate among under-65s it will still be accounting for C. 740 admissions a day. This is where we were in early October last year, at the time onerous restrictions were placed on much of the North of England.

Now here comes the challenges.

In the autumn, about 1.4 million flu vaccinations were given each week. To get 25% of the population vaccinated by May, 2.5 million vaccinations a week need to be given. That assumes a 12-week interval between the two vaccinations.

Those of you who have flu vaccinations will know what a streamlined operation it often is. My experience was that it took two minutes from going in the door to coming out of the exit.

This vaccination requires the recipient to be seated (socially distanced) for 15 minutes after the vaccine being given to ensure there is no reaction. This will slow the process. Then there are the logistical problems of rolling out the vaccine. I have seen reports of one area moving already to their third tranche of priority cases, whereas in my area the vaccination centre was not expected to open until the 11th January.

The other challenges are that not all will be willing to receive the vaccine and no vaccine is 100% effective. Therefore, by vaccinating 25% we will not see the expected 90% reduction in deaths.

If the numbers infected are increasing then it is going to be very difficult, particularly in the early months of the vaccination programme, to witness its effect on the data. Then the other danger takes hold - as the number of deaths reduce people get too confident and take too many risks. Pressures on the NHS may last longer than necessary.

The above is all based on historical statistics. The problem comes when projecting the future is based on what assumptions you make.

We know the numbers of infections, hospitalisations and deaths up to today. What we don’t know is for how long the current increase in infections will continue. This will affect the number of future hospitalisations and deaths. Part of this depends upon Government actions and compliance with them.

The public will be looking for evidence that the vaccination programme is having an effect. This tipping point depends on the speed the vaccine is rolled out and the rate at which infections are increasing.

Statistics also show that, towards the end of 2020, lending levels in the later life lending market were back to their 2019 levels. Unless there is a significant increase in interest rates, which is unlikely, there is little to indicate the upward trend in lending before the pandemic should not continue. In fact, there could be an increase in demand as the Bank of Mum and Dad try to help their children and grandchildren who have suffered a financial hit during 2020.

Another interesting statistic comes from the FCA’s 2013 review of interest-only mortgages. The regulator expects close to 80,000 interest-only mortgages to mature in 2021 and each of the subsequent two years. Many of those would have arrangements in place to repay the maturing mortgage. How many of those arrangements were knocked off course during 2020?

Also, around a third of households have seen their household finances take a hit during 2020. How many have agreed mortgage repayment holidays with their lenders. If those mortgages are close to maturity, will they be able to be repaid in full? What will be the impact on their retirement planning?

2021 could be the year RIO mortgages and other later life lending products provide some breathing space for those with maturing mortgages without the means to repay the outstanding balance. How significant, may depend upon how successful the vaccine programme is.