17:43 Monday 9th May 2016
BBC Radio Cambridgeshire
CHRIS MANN: At what age are you too old to be in debt? One of the UK’s biggest lenders says it will lend mortgages to people until they are would you believe eighty five. But is that sensible, and what difficulties might it create? Kevin Peachey is the BBC’s Personal Finance Reporter and he joined me a little earlier.
KEVIN PEACHEY: Well lenders general wanted people to pay off their mortgages by retirement, so they ensure that all of those repayments were made while people had a working wage. But now Nationwide, one of the biggest lenders in the country, says that from July it will allow some existing customers to have their mortgage until they’re eighty five. So that means a sixty year old taking out a twenty five year mortgage. And this move comes after their competitor Halifax raised its age limit from seventy five to eighty. So people in their eighties will still be paying off mortgages.
CHRIS MANN: I suppose it all reflects the changing demographic, and quite simply people are living longer anyway. Can everyone get such a loan?
KEVIN PEACHEY: No, and here’s the catch. With the Nationwide one there’s a maximum loan value of £150,000. Now that rules out a lot of properties in Cambridge of course, where prices have been going up and up quite quickly in recent times. They must also give a deposit of 40% of the home’s value, and it’s only for existing customers. But previously that limit was seventy five, not eighty five, and so for a lot of people this will be good news.
CHRIS MANN: So explain what does this mean for people’s finances Kevin?
KEVIN PEACHEY: Well there were a lot of concerns about what are known as mortgage prisoners. A few years ago we had stricter rules on lending mortgages, all as a result of the financial crisis of course. And that included affordability checks. And the result of that was a lot of older people unable to remortgage because they were deemed to be too old, and their income was going to drop in retirement. They could still make the repayments no problem, but they ended up on a worse deal as a result. Now if the market moves to this older maximum age, then that should help these people. But of course the lenders, well they’re banking on something. They’re banking on house prices rising, because if people pass away and they still owe money, then the banks know that they can sell that property and get all their money back.
CHRIS MANN: What we expect to happen next? Will others flood in to try and do this?
KEVIN PEACHEY: Well that’s a big question. Others are certainly under pressure to do something. There’s quite a range at the moment of maximum mortgage ages, from a retirement date upwards really. Eighty five is certainly the highest though. And there’s a lot of pressure on some borrowers too. The Bank of Mum and Dad which we’ve spoken about before, the Bank of Gran and Grandad I guess in this age group, they’re already facing pressure from younger members of the family saying oh come on, can you help me to get on the housing ladder. It was very different maybe when they bought their first home, compared to when their children and grandchildren are trying to get onto the ladder.
CHRIS MANN: Kevin all this reflects does it not the fact that it’s not younger people who’ve got money these days, free cash. They’re partly busy paying off their student loans or whatever else. It tends to be the older people in society who’ve got a bit of cash. And the mortgage lenders just want some of that.
KEVIN PEACHEY: Yes. I think there’s an element too of the housing market is a bit of a window onto what’s a wider debate over intergenerational fairness. In other words fairness between generations. is it the case that the younger people as you say have got student loans, maybe less help in terms of benefits. Whereas pensioners certainly doing quite well at the moment, because certain benefits are locked in, the Government’s promises to keep them there. So that’s quite a debate. It’s not as easy as it might sound. A very complex debate, but certainly one we’re going to hear right up to the next General Election I’m sure.
CHRIS MANN: And Ken, finally, just matching a couple of things. Of course people can now can’t they get an advance on their pensions. And now here they are, able to get a mortgage until a much later age. So perhaps that will encourage a bit of speculation in property.
KEVIN PEACHEY: Possibly. Possibly. I’d be a fool to predict house prices, because that way danger lies of course, as with any investment. But there has been lots and lots of changes for the finances of older people. One of the most striking of course is people being able to cash in their pension pots, rather than buy an annuity, a retirement income. And that’s meant a lot more cash available, and some saying a lot of that is going into the property market.
CHRIS MANN: That’s Kevin Peachey there with some handy advice.