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Mortgage lending to older borrowers in the UK fell in the last three months of 2023, as rising interest rates squeezed affordability for over-55s.
The number of new mortgages taken out by older borrowers – those over the age of 55 – fell by 37 percent year-on-year in October, November and December of last year, according to data from the… British Trade UK Finance. The value of this lending amounted to £4.1 billion, a decrease of 42 percent.
Home equity mortgages, or remortgages, were down 21 percent, while new lifetime mortgages, or equity releases, were down 40 percent.
Mortgage brokers said older borrowers were hurt by the impact of rising house prices and interest rates. Many are forced to focus on paying off their mortgages rather than thinking about getting a new loan.
Older borrowers are also downsizing on mortgages for discretionary spending.
“Previously, older borrowers may have used… [mortgages] “They're for home improvement, travel or helping a younger family member get on the property ladder,” said David Hollingsworth, associate director at L&C, a mortgage brokerage. “If the cost of such borrowing is rising, this type of borrower may stop to think.”
Because of rising interest rates, some older borrowers are “going out of the market completely” because they are unable to qualify for loans with better value propositions, according to Ray Bolger, principal at brokerage firm John Charcol.
“The maximum loan amount is a little lower than it was two or three years ago,” he said. “Some people who could have chosen a lifetime mortgage now can't because they don't have enough equity.”
Mortgage lender Perina, which offers fixed interest rates for 20 or 30 years, says the market is “fundamentally biased towards seniors”, with older borrowers experiencing limited options when looking for a mortgage later in life.
Arjan Verbeek, CEO of Perenna, said: “Concerns about mortgage affordability are particularly prevalent among borrowers later in life, who often face age-related end-of-term restrictions from lenders when trying to remortgage or secure a mortgage. New real estate. “The current market, dominated by fixed short-term interest rates, does little to support this demographic.”
The Bank of England began gradually raising the base interest rate at the end of 2021 from 0.1 percent. It has since risen to 5.25 percent. According to Moneyfacts, the average interest rates for two-year and five-year fixed mortgages are 5.69 percent and 5.27 percent, respectively.
Desire for retirement interest-only mortgages (ROS) has also fallen, with just 255 sold in the fourth quarter for a total value of £26m – down 43.3% compared to the same period last year.
These programs target older borrowers, and Rios are repaid if they die, when they move into long-term care or sell their home. The borrower is obligated to pay only the monthly interest until that time.
Although borrowers are able to achieve a higher maximum loan value in the RIO market, many are unfamiliar with specialized products, which are more expensive than mainstream mortgages.
“For Rios to become more popular, they need to offer more competitive prices,” Bolger said.
In UK Treasury figures, buy-to-let or remortgage loans fell by 53 per cent.
