David Sinclair's Council of Mortgage Lenders speech

The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The older borrower
David Sinclair, ILC UK
David Sinclair, International Longevity
Centre – UK @ilcuk @sinclairda

ILC-UK Planning Tomorrow, Today
 think tank
 evidence based
 policy focussed
 balanced
 independent
 respected
 experts
 networked
 international

Who do we work with?

Our focus is broad

Extensive work on debt and on housing

In summary
 Industry and regulatory environment seemingly
struggling to respond to ageing
 Perhaps it’s always been a problem
 Demographic policy and social change means it
can no longer be ignored as an issue
 Need for Government and Industry action

“I only did a brief visit to one or two banks and made a few
calls. The immediate reaction was when is your state
pension age, sorry not possible. However with a lot of
pushing I did sit down with people at two banks and
basically I think what materialised was that they might be
able to give me a few years if I was going to continue
working, very, very minimal amount. One of the two banks
the mortgage person only agreed to look further when I said
I wanted to talk to her boss. I don't think they took account
into how much I was earning or anything like that . Basically
it was all about age and state retirement. If I hadn't pushed
and been really upset I don't think I would have got past the
first post.

Similar stories from Age UK
“Caller has been refused a mortgage beyond the age
of 70 by a high street bank… Caller has asked the
bank for ‘relevant information from a source on which
it is reasonable to rely’ to base risk assessment and
has been told it is just that ‘at age 70+ people’s
circumstances have changed’.”
“I was amazed to find today that as a current home
owner, although I was approved for a small mortgage
on line, when I went to branch they advised me that
banks will not offer mortgages that extend beyond a
person’s 75th birthday.”

Always an issue, or more of in issue now?
18 April 2015
[Ros Altmann] will
mount a crackdown
on "blatant age
discrimination" in the
mortgage markets,
where banks are
refusing to lend to
older workers even
though they will have
secure pensions to
help meet
repayments in their
retirements.

Number and proportion of mortgages
extending to age 65 and beyond (CML)

Always an issue, or more of an issue now?
Demographic/social change: Increased longevity;
Divorce rates increasing; Changing family structures;
marrying later, children later, buying later; healthier
longer
Financial insecurity: Falling saving levels; Debt;
Interest only mortgages: Asset rich, income poor; Poor
returns on investments; “grandparental giving”
Public policy change: Pension freedoms and buy to let
– the search for yield; Focus on extending working lives;
failure to build enough homes; MMR
A new older consumer? an untapped market?

Demographic change
Increased
longevity
Divorce rates
increasing
Changing
family
structures

There are more of us living longer

Growing numbers experiencing divorce at 60+

Changing family structures
Marrying later, children later, buying
later, grandparental giving
 The average age of a first time
buyer without family assistance is
now 33 compared with 30 in
2008. (ILC-UK Factpack 2014)

Financial insecurity
Falling saving levels
Debt
Interest only mortgages
Asset rich, income poor
Poor returns on investments
“grandparental giving”
Care costs

We aren’t saving enough

We need to pay off debts

Problem debt is small – but levels aren’t falling
Bankruptcy
among over-65s:
5,672 people in
2013, up from
4,727 in 2009
(26% rise)

Fewer people owe much more
 Overall average increase among 50+ population is
modest: £1,100 in 2002 to £1,400 in 2010
 Among debtors:
– Average amount 2002: £4,050; 2010: £6,200
– Median amount 2002: £1,500; 2010: £2,500
£0
£1,000
£2,000
£3,000
£4,000
55-64 65-74 75-84
2002 2010

…household debts expected to rise

Beware the joys of forecasting (IFS Green
Budget)

Mortgage debt is part of the picture

Worrying number with interest only mortgages
with no linked investment

People looking to housing for a yield
ILC-UK
analysis of
Nationwide
data

Monetary policy in response to a crisis

Public policy change
Pension freedoms and buy
to let
Focus on extending
working lives
Failure to build enough
homes
Zero hour contracts
MMR

Mark Hayward: National Association of Estate Agents
“There are no doubts we will see a feeding frenzy, with
many of those with large pension pots cashing in their
lump sum and putting it straight into property.
This will have a massive knock-on effect on first-time
buyers already under pressure, in competition with
cash-rich buyers heading straight for the buy-to-let
market. We still have an under-supply of housing and
this movement is likely to fuel further house price
inflation.‘

Pension freedoms and buy to let
 Buy to let is risky
 An older person can lose their main home as well
as their buy to let home if things go wrong
 House prices don’t inevitably go up
 If self managed, buy to let can be a huge hassle.
Returns lower if outsourced

Pension freedoms, MMR and affordability
 Fewer people annuitizing.
Means no guaranteed
income for life. How will the
industry respond to
drawdown or other products?
 What about men who take
out single person annuities
when they have a wife, and
then die. Suddenly the
widow has no income
stream.

Pension freedoms – Risk of poverty if people
make the wrong choice
Of the 50% of
individuals who opt for
a lump sum in
Australia, 31% use it
to pay off housing
costs, to purchase a
home or to make
home improvements
and 12% used it to
pay off other debts.
(Partnership)

Our economy needs us to work longer
Employment
among over-
65s: exceeded
1m since Apr
2013 (ONS
2014)

Policymakers have failed to build more houses

Policymakers have somewhat ignored growing
number of zero hour contracts

MMR?

And finally - A new untapped market?
The older consumer?
The over 65s in the UK currently spend around £2.2
billion per week (£114 billion per annum) on goods
and services. Assuming their weekly spending rises
in line with annual inflation of 2%, they are likely to
be spending over £6 billion per week (£312 billion
per annum) by 2037

Housing wealth held by retirees is significant

…for middle income groups, property wealth is
king
-20%
0%
20%
40%
60%
80%
100%
2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Pension
Physical
Financial
Property
Contributions of different types of wealth to total wealth
by income deciles
Source: ONS, Wealth and Assets Survey and own calculations (results exclude 1st decile as total wealth is negative)

We are asset rich but income poor
Bimodal distribution of
wealth in which those with
no housing equity at all
are bunched together at
the bottom with incomes
which range from
approximately £8,000 to
£15,000 a year

An untapped market that can spend?
“They have fewer ties to family responsibilities...
With their homes paid for their major housing
concern is for property taxes and repairs... Being
essentially free from obligation, they may spend
their income and assets as they wish. Here is a
potential market, therefore for those marketers
who wish to appeal to it. It is a new market,
almost unrecognised which must be developed
with care as it depends upon the changing role
of older persons in our society and the
realisation that they are more free than their
predecessors in the past century.”

An untapped market that can spend?
“They have fewer ties to family responsibilities...
With their homes paid for their major housing
concern is for property taxes and repairs... Being
essentially free from obligation, they may spend
their income and assets as they wish. Here is a
potential market, therefore for those marketers
who wish to appeal to it. It is a new market,
almost unrecognised which must be developed
with care as it depends upon the changing role
of older persons in our society and the
realisation that they are more free than their
predecessors in the past century.”
Dodge,
1962

What does industry need to do?
 Increase mortgage lending
 Avoid targeting younger people for equity release
 Address the challenges of lending into retirement –
don’t discriminate on age
 Address the fear of borrowing
 Not exploit the “pension freedoms”
 Responsible lending

Increase mortgage lending

Don’t sell too young (ERC figures)
 Equity release at
55?
 71 - average
customer – up from
68(Key/ERC)

But.. 55-64 group growing % (?following MMR)
50
Equity Release
Council,
Market Report
Spring 2015

Address the fear of borrowing
Our research shows
very few older people
would use credit to
meet an unexpected
£200 expense – many
more say they simply
could not pay.

Older people tend to be more averse than
younger to debt

As a result, as we age, fewer of us have debt

Perhaps financial capability/numeracy is part
of the solution?
Proportion answering Compound
Interest Question Correctly
55-59 29.6%
60-64 28.3%
65-69 24.9%
70-74 16.8%
75-79 13.9%
80-84 11.0%
85+ 10.8%
In ELSA (2008) this is
the proportion of
people aged 55+
who can answer
correctly the
question: If you have
£200 in your account
paying 10% interest a
year, how much
would you have in 2
years?

Be cautious about house prices.

It’s not a dead cert, especially outside the
South East

Do you need to use age alone?
 Age (being 50-64 vs 65+)
 Employment Status (self-employed, unemployed)
 Income (low income)
 Housing tenure (owning with a mortgage, renting)
 Depression (2010)
 Manageable debt vs problem debt
– Low income, Unemployment/Self Employment,
Mortgage/Renting

What does Government need to do
 Ensure access to advice
 Ensure policy facilitates the building of more
houses (including retirement homes)
 Ensure people are aware of options (equity
release)
 Raise/maintain confidence in financial services

Many thanks
David Sinclair
Director
International Longevity Centre - UK
Davidsinclair@ilcuk.org.uk
02073400440
Twitter: @ilcuk and @sinclairda

David Sinclair's Council of Mortgage Lenders speech

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