There has been some welcome movement in the mortgage market of late.
In anticipation of interest rate cuts from the European Central Bank, some lenders have been trimming their rate offerings already.
Then there was the injection of some badly needed competition into the sector with the arrival of the lender, MoCo, owned by the Austrian bank, Bawag.
MoCo had one headline grabbing innovation to offer on arrival – it told brokers that it was prepared to issue mortgages to people who can continue repayments until the age of 80.
Some wondered at the time if it was a flash in the pan gimmick, but now another lender has followed suit, with ICS Mortgages saying it would do likewise.
Is there any need to provide mortgages up to the age of 80?
The reality is that the timescale for everything in life is being extended as life expectancy grows.
The time spent in education tends to be longer on average and that has pushed out plans for embarking on a career, marriage, starting a family and buying a home.
At the other end of the scale, retirement is getting later and later, whether by choice or by circumstance.
It has all had an impact on our financial arrangements and the prospect of paying a mortgage into our 70s no longer appears that extraordinary.
Most lenders here already allow repayments up to the age of 70, but that is being expanded now with these new product offerings.
Who would want to avail of a mortgage later in life?
A surprisingly large cohort. Firstly, there is the regular aspirant house buyer.
As Joey Sheahan, Head of Credit at online brokers MyMortgages.ie, and author of The Mortgage Coach, points out, the typical age for drawing down a mortgage is getting later in life.
“We are already seeing the trend reported by the CSO, where the median age of mortgage applicants increased from 33 in 2010 to 43 in 2021,” he pointed out.
By conventional standards, that leaves a buyer with a window of around 20 years in which to pay back their loan.
Given that property prices are steep in many parts of the country, a more realistic timescale for repayment would be 25 to 30 years, potentially taking the applicant into their 70s before they finish paying their mortgage.
“It is important to see the market react and respond to this,” Mr Sheahan said.
Another section of the population that such products might be of interest to are divorced or separated people.
“The numbers are increasing in Ireland,” Mark Murphy, Senior Financial Advisor with Affinity Advisors said of this cohort, who may be seeking to purchase a new property either alone or with a new partner.
The challenges in getting access to finance for a new home has long been a bugbear for divorced people.
The Central Bank introduced changes in recent years that allow divorced people, who previously had an interest in a family home, to essentially be treated as a first-time buyer.
They could also be deemed eligible for some first-time buyer schemes, such as the local authority home loan and the First Home Scheme (but not Help to Buy).
While going some of the way towards assisting divorced people to make a fresh start, there is still the time pressure associated with paying down a mortgage over an accelerated timeframe.
That is where these products might make the difference.
“The increased term might allow them the opportunity to purchase a new home as the repayments spread out over a longer term may bring them into a position where they are able to meet the relevant assessment and affordability checks with the lender,” Mr Murphy pointed out.
Who will be able to afford repayments until 80?
Mortgage applicants are required to demonstrate that they can meet their repayments up until the expected end of the term, whether it’s aged 60 or verging on 80.
For the upper limit, it might include a pension or supplementary income, such as dividends or the proceeds of share sales, or rental income from an investment property, for example.
“The fundamental safeguards remain in that each mortgage application will be assessed in terms of the applicants’ circumstances and ability to pay the mortgage both pre- and post-retirement,” Joey Sheahan explained.
“Applicants are mandated to have mortgage protection and life cover in place,” he pointed out.
Mark Murphy believes that, given the higher potential risks associated with applicants who are expected to continue paying into old age, the bar would inevitably be set slightly higher.
“I would expect enhanced or additional checks to be put in place from the lender for potential applicants to prove they have a sufficient guaranteed income to service the normal capital and interest monthly mortgage repayments up to age 80.
“For example, a detailed breakdown from their financial advisor outlining pension contributions and projected pension fund at expected retirement age,” he explained.
Interest rates, however, will match those that are available to younger borrowers. In other words, there will not be an ‘interest rate penalty’ for availing of a mortgage that will be paid down into later life.
Is there likely to be much demand for such products?
Given the older average age at which people draw down mortgages now, it would not be unusual for them to take on terms that will see them making repayments into their 70s.
However, it may be the case that they will have to stay in paid employment longer in order to service those costs in future, especially in light of the changed pensions landscape.
In the context of the decline in prevalence of defined benefit (DB) pensions, where people retire on a set income for life that’s usually a percentage of their final income, there would arguably be a shrinking cohort of individuals who would be able to make repayments based on their pension income.
Most participants in the workforce today contribute to defined contribution (DC) pensions, where the employer and employee pay into the pot and the money is invested, usually in a scheme organised by the employer.
The size of the pot at the end determines the level of income that the pensioner can aspire to live on. The amounts are generally significantly less than those that a DB pension offers, but DBs have increasingly become the preserve of public servants and executives.
“Based on experience it’s unlikely that demand will be particularly high and, in the main, the majority of mortgage borrowers will still have a mortgage term that won’t go beyond the age of 70,” Mark Murphy said.
“I think you’ll find the greatest demand will come from the public sector,” Robert Whelan, Managing Director of Rockwell Financial said, referring to higher incidence of DB pension provision among that sector.
“They’re primarily the only borrowers with the degree of certainty around retirement income that the banks would require in order to facilitate such a term.”
So, is it a gimmick then?
There will be people for whom this will be a welcome development in helping them to purchase a property and to give them breathing space in paying down the loan over an extended period.
While there will inevitably be arguments that it is facilitating irresponsible lending, the onus will be on the borrower to prove that they will be able to meet their repayments into their late 70s.
Robert Whelan believes the pros and cons of such a product will become clearer as they are rolled out.
“Much like equity release loans, which a lot of people considered a great idea at the start, but when you got under the bonnet, the cost became prohibitive,” he said.
Mr Whelan described the development as the next step in the ‘Japanification’ of mortgages.
“In Japan, it’s quite typical to have 100 year mortgage. It’s taken out against the family home and is responsibility of the family to repay.
“When you consider the modern trend towards people living in the family home until they’re mid to late 30s due to the cost of housing and rent, it makes sense on some levels especially if they would be the ultimate beneficiary of the property when the parents die,” he explained.
We’re not quite there yet in Ireland, but Robert Whelan did point to an interesting potential outcome from the ‘later in life’ mortgages.
Could we see the Celtic Tiger phenomenon coming full circle with adult children being asked to act as guarantor for their parents?
That development would mark quite the turnaround indeed.
