New later life mortgages fell 7% to £6.5bn in the third quarter of the year compared with the previous three months, amid easing house purchases in the wider market as the stamp duty holiday came to an end.
There were 44,130 new later life mortgages, issued to over 55s, in the quarter to September, although this is a 6% rise on volumes a year earlier, according to the Later Life Mortgage Lending Q3 2021 report by banking body UK Finance.
It says lending to older borrowers, those aged over 70, was stable, as these borrowers primarily buy products that are not related to house purchases, such as equity release loans.
The survey says: “Lifetime mortgage volumes have remained modestly lower than prior to the Covid-19 pandemic, but this reduction is expected to be temporary as the uncertainty driven by the pandemic subsides.”
The stamp duty holiday came to an end on 30 September, after being launched last July by chancellor Rishi Sunak to kick-start the housing market that had stalled due to lockdown restrictions caused by the health crisis.
The report estimates that retirement interest-only (RIO) mortgages, launched in 2018, have only sold just over 700 products to date. In the third quarter of 2019, just over 400 products had been sold.
Retirement interest-only mortgages were launched to help thousands of older homeowners remortgage their homes to clear housing loans they are still left with in retirement.
The survey says: “It is well documented that RIO mortgages have not been as popular as the mortgage industry had hoped.”
It adds: “Volumes [for RIO deals] are low compared to other later life products which is due in part to challenges for many borrowers in meeting the affordability requirements for a RIO mortgage”.
Affordability checks on RIO loans are carried out on an individual basis and must show, for instance, that both partners in a couple can keep up with payments should one die, or leave the household.
The report says: “While it can be difficult for borrowers to switch from an interest-only mortgage to a RIO mortgage, RIOs are still an alternative product to lifetime mortgages.
“Lenders are providing these products where a lifetime mortgage may not be the best fit for the borrower (e.g. when the customer is looking to borrow at slightly higher LTVs).”
The survey says that in the nine months to September the mean loan size of an RIO mortgage is £89,000, with a mean borrower age of 70 and a mean loan-to-value of 28.5.
Over the same period, the mean loan size of a lifetime mortgage is £98,000, with a mean borrower age also of 70 and a mean LTV of 23.9.
UK Finance director of mortgages Charles Roe says: “Following the end of the stamp duty holiday, mortgage lending to over 55s declined seven per cent in the third quarter compared to the previous quarter, mirroring the wider market.
“However, there was a slight rise in lending to those aged over 70 as people sought to release equity in their property rather than moving home.
“Our focus on retirement interest-only mortgages shows they have grown in popularity since their launch in 2018.
“These products provide a good alternative for customers where a lifetime mortgage may not be the best fit, however, take-up is lower than other later life products due to affordability.”
