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 borrowerDavid 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?

http://www.housinglin.org.uk/

http://www.dh.gov.uk/health

http://www.google.co.uk/url?sa=i&rct=j&q=BT&source=images&cd=&cad=rja&docid=G-7vjkyhkckoCM&tbnid=nxYEOO791l2ijM:&ved=0CAUQjRw&url=http://www.uswitch.com/tv/news/2012/11/british_eurosport_comes_to_bt_vision/&ei=VE4SUaz_A6eW0QWizIDgAw&bvm=bv.41934586,d.d2k&psig=AFQjCNHYMZsXtv4deM-_Rd4iW5FijOtRMA&ust=1360240537348380

http://www.pfizer.co.uk/sites/uk/Pages/default.aspx

http://www.google.co.uk/url?sa=i&rct=j&q=prudential&source=images&cd=&cad=rja&docid=_50fNauR_yu1EM&tbnid=CbdObA4nbf4lAM:&ved=0CAUQjRw&url=http://www.grovelands.co.uk/rdr-crisis-as-prudential-calls-for-a-delay/&ei=uU4SUf7OFPO10QWAx4HwDA&bvm=bv.41934586,d.d2k&psig=AFQjCNEDsAHmnrUtUJrGsb0onG-GTdC0yA&ust=1360240678425765

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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 longerFinancial 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; MMRA 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

55-64 65-74 75-84£0

£1,000

£2,000

£3,000

£4,000

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

2nd 3rd 4th 5th 6th 7th 8th 9th 10th0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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 negat-ive)



We are asset rich but income poor

Bimodal distribution ofwealth in which those with no housing equity at all are bunched together at the bottom with incomeswhich 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



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




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 industry need to do?


Avoid targeting younger people for equity release

Address the challenges of lending into retirement

– don’t discriminate on age


Not exploit the “pension freedoms”

Responsible lending



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

[email protected]

02073400440

Twitter: @ilcuk and @sinclairda

mailto:[email protected]

David Sinclair's Council of Mortgage Lenders speech

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