Later life UK mortgages decrease as stamp duty holiday ends

·3 min read
LEEK, ENGLAND - NOVEMBER 11: A couple look at houses for sale at an estate agents in Market Town of Leek on November 11, 2020 in Leek, England. The United Kingdom will continue to impose lockdown measures until December 2 in an attempt to curb transmissions of the coronavirus (COVID-19)   (Photo by Nathan Stirk/Getty Images)
Lending to older borrowers, those aged over 70, was stable across the period due to them accessing the market primarily through products that are not related to house purchase. Photo: Nathan Stirk/Getty Images

The number of people getting new later life mortgages fell in the third quarter of the year as the government’s stamp duty holiday wound to an end.

According to UK Finance, there were 44,130 later life mortgages, with total lending in the quarter coming in at £6.46bn ($8.6bn). This represented a 7% decrease in mortgage volumes, when compared to the three months prior.

Overall, lifetime mortgage volumes have remained modestly lower than prior to the COVID-19 pandemic, the research showed, but this reduction is expected to be temporary as the UK economy recovers.

The figures for Q3, however, did represent a 6% increase compared to volumes at the same time last year.

“The overall quarterly reduction was a result of declines in the number of mortgages taken out by those aged between 55 and 69, which reflects lower house purchase volumes in the wider housing market, coincident with the unwinding of the stamp duty holiday,” UK Finance said.

September was the final month buyers could benefit from the government’s stamp duty holiday, a tax break designed to prop up the housing market, and help consumers as the economy contracted during the COVID-19 lockdowns.

Read more: UK house price rises sharply as stamp duty holiday ends

The holiday was extended from 31 March 2021 to the end of June and once more, tapering from June to the end of September, as people rushed to market.

Housebuyers could have cashed in on savings of up to £15,000 if they bought at the right time.

The break caused a frenzy in the market, with many using it as an excuse to make long-awaited moves or buy for the first time. However, some said that with climbing house prices over the past year the discount was quickly priced in and that it "distorted" the market.

The latest data on Monday found that lending to older borrowers, those aged over 70, was stable across the period due to these borrowers accessing the market primarily through products that are not related to house purchase.

Meanwhile, Retirement Interest Only (RIO) mortgages, which were first launched in 2018, started to grow in popularity this year as more borrowers entered the market. Volumes are low compared to other later life products which is due in part to challenges for many borrowers in meeting the affordability requirements for a RIO mortgage.

Watch: How much money do I need to buy a house?

“While it can be difficult for borrowers to switch from an interest only mortgage to a RIO mortgage, RIOs are still an alternative product to lifetime mortgages,” the trade association said.

Lenders are providing these products where a lifetime mortgage may not be the best fit for the borrower, for example, when the customer is looking to borrow at slightly higher loan-to-values.

Charles Roe, director of mortgages at UK Finance said: “Following the end of the stamp duty holiday, mortgage lending to over 55s declined seven per cent in Q3 compared to the previous quarter, mirroring the wider market.

"However, there was a slight rise in lending to those aged over 70 as people sought to release equity in their property rather than moving home.

“Our focus on retirement interest-only (RIO) mortgages shows they have grown in popularity since their launch in 2018. These products provide a good alternative for customers where a lifetime mortgage may not be the best fit, however, take up is lower than other later life products due to affordability.”

Watch: Why are house prices rising during a recession?