We’ve observed an interesting move from the Building Societies Association (BSA). In a clear acknowledgement of the demographic and financial changes brought about by greater longevity, more working pensioners, and smaller pension pots than many had anticipated, the BSA is reviewing its upper age limits on mortgages ‘to tackle the increased needs for lending into retirement’. We think this is a major signal to the rest of the UK’s financial services industry.
As Mortgage Strategy discussed in their recent article, this is recognition that major changes are afoot, for the growing, and increasingly wealthy, older population in the UK. It is recognition, also, that the old world, when FS providers took their savings, paid them a – usually pitiful – annuity, and waited for them to die, have gone forever. The 60+ market for financial services is likely to become much more competitive in many sectors, as financial services providers seek to understand the emerging market segments and their needs.
Mortgage providers are faced with a real challenge, as dealing with this age group of borrowers will not fit with many of the lenders’ business models. How long can a loan last? Does this group justify the reintroduction of the interest only mortgage? Can they develop portable loans, for instance to support a move to a downsized home, and eventually to sheltered housing? Can they create ‘family’ loans, to go down the generations? What type of staff should be involved in selling these mortgages – an older profile, for example?
Any move by a major provider needs to be very carefully thought through; simply adapting what they currently have won’t work, as the demographics, expectations and needs are very different from the traditional mortgage customers.
Many possibilities also open up beyond the mortgage market. Consider for example the opportunity for educational loans. These wouldn’t be to cover the fees that 18 year olds are currently obliged to pay, but funding is needed for many courses.
And where else might product offerings emerge? Just a few ideas;
- Advice, protection and insurance for those looking to help children and grandchildren get on the housing ladder, but concerned about giving or lending money into what might be an unstable relationship.
- Business start-up advice; there are many business areas which are perfectly manageable by pensioners, such as buy-to-let or consultancy, but where help is needed. Again, this will differ from the advice to business starters in younger generations, being concerned with capital preservation and exit options as well as business-building.
- Insurances; many forms of insurance become unaffordable for older people, for example travel and medical; can new models of insurance product be designed to broaden the appeal?
A final thought concerning the development and sale of these products. Many Financial Services institutions have, through rationalisation and reorganisation, got rid of older staff. They may lack the insight into the needs of the older generation needed to develop offerings which really work. And many in the older age groups may not take kindly to having a 25 year old try to sell them something!