- New independent study reveals that home ownership is changing in response to economic, demographic and housing market trends, making borrowing into older age more common
- Report reveals that over 65s mortgage debt set to double by 2030, rising by more than £19 billion
- Changes to housing market dynamics are being driven by low real wage growth, house price inflation, low supply of new homes and rising student debt
- Building societies are seeing a rise in mortgages for older customers. During 2016 the proportion of new mortgages from the sector with a term beyond age 65 rose from 34% to 38%¹.
A new study by the International Longevity Centre-UK (ILC-UK), supported by the Building Societies Association (BSA) has found that borrowing into older age is likely to move from niche to mainstream within the next decade. The amount of mortgage debt held by over 65s is set to increase by more than £19 billion by 2030 (from £20.1 billion to £39.9 billion).
The report reveals that current economic trends such as house price inflation, tighter credit conditions and low real wage growth mean we can expect to see a significant shift in the customer base of the mortgage market over the next 13 years.
The mortgage market is witnessing a marked evolution from the ‘traditional route’ of individuals buying their first homes in their 20s, trading up in their 30s and 40s, paying off debt in their 50s and 60s and then entering older age with little or no mortgage debt.
Since the financial crisis, home ownership amongst 20-29 year olds has fallen from 53% to 38%². For those between 30-39 years old home ownership has fallen from 73% to 65%². Today, many first-time buyers are delayed from stepping onto the property ladder by factors including low supply of new homes and higher house prices, greater student debt, persistent low real income growth and challenges in saving for a deposit.
As the home ownership life cycle shifts, the time of life by which mortgages are paid off is shifting too, the ILC-UK research has shown that over six per cent, or 1.42 million people² aged 35 to 64 will not have paid off their mortgage before retirement given the current term of their loan.
If nothing changes, it will become more common for consumers to buy for the first time in their late 30s or 40s, with longer mortgage terms from the outset. They will be more likely to trade up later in life and repay at least part of the mortgage from retirement income or draw more to fund needs in later life. By 2030, the ILC-UK projects that £3.3 trillion or 58% of all housing wealth in the UK will be owned by the over 65s.
Paul Broadhead, Head of Mortgage Policy at The BSA commented, “The first question for national policy-makers, including government, is whether action should be taken to try and maintain the ‘traditional’ market. In my view the socio-economic changes lenders and consumers are already experiencing are unstoppable. So instead the focus must be on adapting to a changing market. Top priority must be given to radically increasing housing supply across all tenures, including recognising shared ownership as a tenure in its own right.
“We must also respond as an industry to reflect the changing needs of customers. This will include an increasingly intergenerational approach to home ownership, as parents and grandparents borrow to release some of their housing wealth to support the younger generation. It is the combination of multiple factors that will drive greater levels of mortgage borrowing in later life.”
This shift in the housing market is part of a wider cultural change in how we live our lives. With life expectancy having significantly increased, those who are 65 today can expect to live to 90. People today are also working longer, currently one in 10 people aged over 65 are employed. Due to these factors, as the population ages and people become more prosperous and likely to work for longer, there will be a greater capacity for people to borrow into older age.
Ben Franklin from the International Longevity Centre-UK concluded, “The housing market must better adapt to our ageing society, building more homes for all ages across a range of tenures. Over the course of a lifetime, including in retirement, consumers will need to have access to the right mortgage products and advice in order to maximise their long run financial wellbeing. Building societies have made a good start in this regard, but, this is a whole of market challenge that will ultimately need whole of market solutions.”
Notes to Editors
Paul Broadhead is available for interview please contact the BSA or Lansons
A number of customer case studies are available please contact the BSA or Lansons
¹ data courtesy of the CML
² data in the full report which can be found at http//www.bsa.org.uk/lendinglater
A copy of the letter the BSA has sent to the Party Leaders ahead of the General Election can be viewed here
The BSA and building societies: The BSA is the trade body that represents all 44 building societies and 4 credit unions. Collectively building societies have total assets of over £366 billion and including their subsidiaries hold residential mortgages of over £284 billion, 22% of the total outstanding in the UK. They hold over £262 billion of retail deposits, accounting for 18% of the total. Together, they serve over 21 million consumers across the UK, employ around 40,00 staff and operate both via the internet, telephone and through around 1,550 branches.
The ILC-UK: The ILC-UK is a futures organisation focussed on some of the biggest demographic challenges facing Government and society in the context of demographic change. The ILC has a reputation as a respected think tank which often working with key partners to inform important decision making processes.