Improved healthcare and living conditions have contributed to a remarkable increase in life expectancy in the UK, from around 60 in the 1930s to around 80 in 2018. Our mortgage system, which developed after World War 1, reflects historic assumptions about behaviours and household income over the life course—for example, mortgage lenders traditionally required borrowers to repay their mortgages by the time they retired. But in recent years mortgage lenders have become much more flexible, and many now offer products that let homeowners borrow against the equity in their homes into old age.
LSE London’s Kath Scanlon, Fanny Blanc, and Christine Whitehead examine the characteristics of this emerging market in their recent report, Later life borrowing in a world that’s living longer, funded by the Family Building Society (FBS). They look at the drivers of borrowing among older homeowners (60+) in England. There are two main types of loan: remortgages (where the borrower takes out a loan against the value of their property and makes regular payments of interest and usually capital) and equity release (where the borrower gets a lump sum and makes no repayments until they die or move into care when the loan is repaid through the sale of the house).
The study was based on online surveys of Family Building Society customers and of mortgage intermediaries, supplemented by analysis of secondary data, focus group discussions and interviews. There were 956 respondents to the customer survey, all aged 60+. Most were male; married; homeowners; living in detached houses; retired; and had adult children (though not necessarily all these at once). They were an affluent group, with relatively high incomes and homes worth £250,000 and up.
Respondents were far more likely to have remortgaged (25%) than to have taken out an equity release plan (2.5%). Both respondents and intermediaries said equity release was an unattractive option because compound interest could quickly erode the value of the property. Remortgaging was also seen as a good way to release equity without downsizing, as many respondents had no desire (yet) to leave their family homes.
How did respondents use the money? The current policy discussion focuses on how people can draw on housing equity to pay for care in old age, but our study suggested that paying for care is not usually the motivation for later-life borrowing. Instead, borrowers used the money for discretionary expenditure (especially to improve their existing homes or buy second homes) or to help children and grandchildren. This reinforces the findings of an earlier piece of LSE London research for Family Building Society, which examined the phenomenon of parental help with house purchase—see the report here.
Later-life borrowing affects not only the household balance sheet but can also have implications for taxes, inheritance planning and other investments. Ideally, then, consumers should be able to get holistic advice from the same source, but there are few advisers qualified to offer it. This is a matter of ongoing discussion among regulators and civil servants.
Borrowing in later life can help allow the benefits of owner-occupation to be fully realised, and the authors argue that people should have the right to decide how to use their own wealth. Innovation and competition are to be welcomed, but older homeowners represent a relatively new market which poses specific challenges. Regulators and lenders should ensure that these financial product innovations benefit older borrowers, not expose them to harm.
