“The payment term product is essentially filling in the middle for those customers. Ultimately it’s probably going to sit between customers that are 50 and 65. For the younger ages, typically they're still working, so they have a degree of affordability.”
Key Later Life Finance also offers a payment term lifetime mortgage, and Bibby says the consumer duty was a reason behind its launch.
“At the very heart of consumer duty is the requirement to look deeply at your target market and ensure that the products and associated advice are really delivering on the needs of your target market,” he says.
“There is clearly now an increasing needs ‘gap’ between a mainstream mortgage product that requires the full servicing of capital and interest, and a roll-up lifetime mortgage where none of the interest is repaid at all.
“In the current interest rate environment, the gap between these products has grown; and at the same time, there is a growing group of homeowners where the best outcome for them lies somewhere in between.”
Mortgage lenders are becoming increasingly aware of the ageing population and their borrowing needs, says David Forsdyke, head of later life finance at Knight Frank Finance, who adds that payment term lifetime mortgages are a “very welcome” introduction.
“But [payment term lifetime mortgages are] just one example of product innovation that is providing more choice to homeowners in their 50s, 60s, 70s, and above. As an industry, we need to keep innovating in order to meet the growing diversity of needs amongst older mortgage borrowers.
“Traditional equity release products are no longer the only option, and advice firms that continue to only offer advice on equity release need to evolve into later-life finance firms, so homeowners receive appropriate advice on all the mortgage choices and alternatives available to them.
“We haven’t yet recommended a payment term lifetime mortgage to a client, but it has been discussed extensively with a number of our clients where it is one of a number of alternatives open to them.”
While Forsdyke welcomes the introduction of payment term lifetime mortgages, he adds that the current interest rates are comparatively high when compared with some other borrowing options available in later life.
“I understand this is a function of them being brand new, and how the products are funded,” he says. “But I would like to see lenders offering lower interest rates to borrowers who are willing and able to make regular payments.”
