Almost 80% of mortgage intermediaries expect lending into retirement to be the fastest growing segment in the specialist mortgage market over the next two years according to Paragon’s latest Financial Adviser Confidence Tracking (FACT) Index based on interviews with almost 200 mortgage advisers.
Intermediaries say mortgages for the self-employed represent the mainstay of the specialist mortgage market today, making up almost one quarter (23%) of specialist lending cases in Q3 2018, followed by interest only (16%), complex income (13%) and high loan to value (LTV) cases at 12% of the total.
At the moment, lending into retirement accounts for a fairly consistent proportion of specialist cases at around one in ten (11%) but it’s in this area that intermediaries see the highest potential for future growth.
However, intermediaries warn that further product enhancements will be needed if the market is to provide the solutions that customers really need. In particular, they highlight four areas for further attention: maximum age limits; diversity of acceptable income sources; availability of interest-only products and choice of repayment strategies.
The Financial Conduct Authority (FCA) redefined the treatment of retirement interest-only mortgages as standard mortgages in March of this year, removing the need for them to be regulated under equity release rules in an effort to broaden product choice for more mature customers.
The FCA believes interest only retirement borrowing can provide a way to help older customers with reliable income access to finance, including those who don’t have sufficient funds to repay maturing interest-only mortgages.
John Heron, Director of Mortgages at Paragon said “Innovation has been a significant casualty as the mortgage market has adjusted to the changes we have seen since the financial crisis. Tougher conduct of business regulation, increased capital requirements and robust governance has made the market safer but constrained the development of new solutions for the challenges that consumers face.
“As mainstream lenders put greater focus on streamlining the mortgage process, the demand from customers with more complex requirements has continued to rise. We’ve already seen this with the self-employed and now intermediaries are giving us a clear signal that demand for later-life borrowing is set to boom. It remains to be seen whether there is adequate flexibility in the market to meet consumers’ expectations.”