This month we had the Building Societies Annual Conference in Manchester, where over 1,000 delegates, 70 speakers, 13 sponsors and over 50 exhibitors came together to discuss, reflect and reflect on the many issues affecting mutual financial services industry and our customers. The topics were wide and varied, including Open Banking, climate risk, operational resilience, start-ups, the future of savings and how we might measure our mutual value.
Today I’m going to focus on the final keynote speech, where Emily Shepperd from the FCA spoke about the opportunities and challenges in a changing landscape.
It was good to hear Emily highlight how building societies have long been champions of underserved markets, reaching more complex first-time buyers, the self-employed and other customers often overlooked by big banks. She described our sector’s approach as “seeing opportunities when others see risks”which I think is a nice way to summarize the more personal approach to customers, both in terms of service and products offered.
But as we expect from our regulator, there were also some warning signs woven into it.
This included the need to embrace technology and digital capabilities and ensure that our lending and savings decisions remain in the long-term interests of consumers. This is in line with the requirements of the new Consumer Tax, which applies to both closed and open products from July. She also noted that the regulator’s current rules allow for flexibility, noting that the FCA is open to discussing any proposals, something we will certainly follow up on.
However, the most interesting topic Emily brought up was lending for their retirement, which she says is moving by “a niche for a standard”.
She recognized the ability of building societies to balance risk, but also questioned whether now was the time to consider whether late-life products meet the requirement to deliver good customer outcomes.
There’s no denying that mortgage terms are getting longer, with first-time buyers now likely to take a term of 30 to 35 years, compared to the more traditional 25 years. And because the age at which people take their first step towards homeownership is getting later and later, it is almost inevitable that for many the term of their mortgage will last longer than the current normal retirement age. But this is not surprising, as rising house prices and rising interest rates have a significant impact on affordability. A longer repayment term reduces monthly mortgage payments, but does mean that the borrower will pay more in the long term.
But what is their alternative? If they don’t take out an affordable mortgage, they will continue to live in a rental home and pay rent for the rest of their lives, without the rental security that many tenants can only dream of.
I deliberately used the term “current normal retirement age” because the world is changing and retirement is no longer the one-and-done event it was in the past. There are two factors that influence this:
- We have an aging population, we no longer have a mandatory retirement age and people are living and working longer. I recently saw an interesting fact that suggests we live 5 hours longer every day!
- Pension is evolving from a snapshot into a process. Individuals often choose to retire gradually, reducing hours and often working in different roles later in life and continuing to work beyond normal retirement age. This is partly due to the fact that pension provisions are insufficient to maintain their lifestyle.
Building funds have been supporting individuals and families in acquiring their own home for almost 250 years. They have continually developed their products to meet the needs of today’s homebuyer. They have robust controls in place to determine a borrower’s affordability now and in the future. However, regulations still enforce different risk models for pre- and post-retirement.
It feels like we are on the cusp of a major change in the UK housing market. We have first-time buyers struggling to realize the dream of home ownership, people in the 50 to 70 age group who can afford their mortgage payments but may be limited by credit regulations, and retired homeowners who, while asset-rich, cash poor.
Perhaps there is a role for a new model of shared ownership. First-time buyers could start their home ownership journey by owning part of their property, gradually moving to full ownership, before potentially moving back to shared ownership in retirement, freeing up capital to meet insufficient pensions. to fill.
So when the FCA asks us what we are doing about later life lending, I say we need a partnership between the industry, regulators, government and society. We need flexibility to enable new thinking and new solutions to respond to today’s changing landscape. As our recent report said, these are age-old problems that require modern solutions.
Construction associations are ready and willing to enter into those conversations.
Paul Broadhead is head of mortgage and housing policy at the BSA