Later-life mortgage borrowing on the increase

The mortgage market isn't all about first-time buyers and second steppers. Often, a mortgage will be needed for relocations, returning expats and buy to let, and a growing number of older borrowers are taking out a mortgage.

In fact, new figures show that over half of all mortgages agreed this year will not be paid off by the homeowner's 65th birthday.

According to a quarterly report from UK Finance, the trade association for the UK banking and financial services sector, around 52% of new mortgage lending is now going to borrowers who will still be paying back the loan after they turn 65.

It's the first time the proportion has exceeded 50%, suggesting that later-life mortgage lending is set to become more significant in the future. In 2014, about a third of new homeowner mortgage lending had terms that extended beyond the age of 65.

One reason for this is steadily increasing mortgage terms over the past 15 years, but there has also been a rise in mortgage lending to older borrowers. Over the past five years mortgage lending to over-55s has continued to grow, even when lending in the wider mortgage market has remained subdued.

Lifetime mortgages (also known as equity release products) have also increased in popularity as older homeowners look to unlock wealth built up after decades of house price growth.

Homeowners took out more than 214,000 lifetime mortgages between 2015 and the end of 2020, according to data from the Financial Conduct Authority (FCA). The number of lifetime mortgages sold has increased by 74% over the past five years.

Declining interest rates for lifetime mortgages have made switching from an existing loan much more attractive, according to mortgage broker Responsible Life. A Freedom of Information request by the company to the FCA revealed that borrowers paid an average interest rate of 3.4% last year, down from 5.79% in 2015.

And a separate report from the Equity Release Council shows that lifetime mortgage product options have doubled in the last two years alone, further increasing the appeal of using equity release to help meet later-life financial needs.

Rising property prices mean that more than three-quarters of the value of the average home is tied up in equity rather than debt, leaving £201,642 of property wealth for its owner to draw on.

Homeowners are increasingly comfortable with mortgage borrowing into retirement and are open to the benefits of realising some of their property wealth as they get older, according to Jim Boyd, chief executive of the Equity Release Council.

"Property wealth can play an important part in a holistic approach to funding retirement," he said, adding that "as an industry, we must work together to ensure consumers get the information they need to weigh up increasingly complex financial decisions to do this".