Can Current Lifetime Mortgage Flexibility Provide a Solution to Challenges for Current First-Time Buyers?
The precarious state of potential future homeownership for many has been highlighted by several key statistics in recent weeks, including research from Pepper Money. The figures, obtained through surveying 4,000 adults nationally, found that 36% of respondents felt that they’d never be able to own a home due to the cost-of-living crisis. In contrast, a further 22% thought that it would be at least five years before they’d be in a position to be able to buy their first home.
Additional research by Uswitch also underlines the difficulties in first-time home purchasing, with the average age of buyers now sitting at 34 years old (tracking this over the last 15-20 years points towards this average having increased about three years) – broken down, a third of buyers were over 35, 20% were aged 35-44, and 13% were aged over 45. Furthermore, 49% of those surveyed felt that house prices would need to fall 11-20% before they could consider buying a home, with a further 13% claiming prices would need to drop more than 20%.
These house price reductions seem unlikely given the most recent forecasts from Savills, which suggest that average house prices were expected to rise by £84,000 – or 23.4% – by 2029 due to stabilising inflation, an easing of mortgage rates and a wide range of home movers being brought back into the market.
All of this comes amid an increasing reliance on other family members for help with property purchases. Recently released data from L&G points to around 42% of property purchases this year likely being aided in some way by the ‘bank of family’, amounting to around 335,000 housing transactions. It also estimated that gifting from parents and grandparents was estimated to hit £11.3bn by 2026.
The concept of releasing equity out of homes for gifting purposes has historically been explored among those in higher age brackets because of the rolling up of interest on many plans. However, this has become more viable across the age spectrum with the advent of optional repayments being made an Equity Release Council product standard in March 2022. This feature has resonated with lifetime mortgage customers. According to the Council’s analysis, over 360,000 voluntary penalty-free repayments were made over 2022 and 2023, with the total value of annual repayments growing 18% from £102m to £120m.
Additionally, the Council found that repaying just £100 a month could help the typical customer reduce their total borrowing costs by almost £17,000 over a decade and almost £50,000 over 20 years. Alternatively, making an ad hoc repayment of £700 every year would save almost £10,000 over 10 years and nearly £30,000 over 20 years.
Further innovation in the sector has also opened extra potential options for those exploring later life lending, with interest serviced products (such as our Heritage range) allowing applicants the chance to receive a discounted interest rate providing they repay at least 25% of the interest each month.
Unlike mandatory repayment products, interest servicing allows people to stop making repayments at any time, and once a customer has surpassed the allowed missed payment threshold, the product refers to the prevailing interest rate. Again, this gives the family options when it comes to making repayments and managing the interest roll-up, in turn increasing the viability of releasing equity even in younger age brackets.
The evolution of lifetime mortgages has undoubtedly provided over-55 homeowners with greater options when it comes to financial planning. With today’s generation of retirees among the most ambitious in their retirement goals, as a lender we believe it’s paramount that they continue to have access to a variety of options to fund their financial goals that also provide them with options to manage their affairs post-completion, to suit both their current circumstances and long-term ambitions.
