Bridging the Gaps in the Equity Release Market
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The later-life lending sector is marching towards an evolutionary crossroads; new customer types are emerging, and the later life and traditional mortgage sectors must work together to meet their needs.
In the past, the traditional equity release customer was ‘property rich and cash poor’. They owned their property outright and benefited from the four-decade-long increases in property values.
For a new generation of customers, paying off their mortgage debt before they reach retirement age is no longer a given. Faced with pressure on sometimes inadequate fixed incomes, these individuals are increasingly exploring the option of simply maintaining their mortgage debt into retirement rather than seeking to pay off to free up cash for discretionary spending.
Our market’s ideal response is multifaceted and complex, but one thing is certain: we cannot think about traditional mortgage lending and later life lending in a siloed way. The market must be restructured to allow for a continuum of lifetime lending, so the next generation can seamlessly transition from a residential mortgage to a later-life product without any friction.
The road ahead
To achieve a continuum of lifetime lending, our industry needs to adapt its processes. At Air, we have recently launched our Comprehensive Conversations Campaign, which is designed to tackle these emerging issues so the industry can best serve the next generation of borrowers. Here are some key areas of focus that will help guide the industry onto safer tracks:
Investing in education and training
When it comes to education, we need to tackle two problems. First, equity release is a specialist market. It’s understandable that some brokers may not have had opportunity to access training on working with older clients. According to more2life’s bi-annual vulnerability report, only 21% of respondents felt that their training was sufficient, and as little as one in eight advisers said they found it ‘easy to spot a vulnerable client.’
When it comes to better assisting the emerging demographic of later-life lending customers, advisers must know how to perform an effective triage and referral process, especially if they can’t advise on the most suitable products to that person. By having comprehensive conversations with their clients, advisers can fully assess their situation and recommend products which suit their needs best – whether that be a later life lending product or otherwise.
Making the most of product innovation
In an ever-changing market, lenders cannot afford to stand still. They must look at the market, understand its current needs, and design new products to meet emerging demands.
For example, Payment Term Lifetime Mortgage (PTLM) products from the likes of more2life and Legal & General have introduced a fresh idea to the market. The products are designed to bridge the gap between mainstream mortgages, where all interest must be covered by the borrower each month, and lifetime mortgages, where the interest is rolled up and paid from the eventual sale of the home. It’s the first step in a longer journey, but radical change does not happen over night.
Forming bonds of solidarity
Let there be no doubt: mortgage networks are the central nervous system of our industry. If a piece of information is worth knowing, then it should circulate into the wider market through these organisations. Networks must collaborate so brokers of all product types can access modern sourcing tools and more effective training programs. This will help ensure mainstream mortgage advisers have the confidence and the knowledge to discuss the various options available to a client, whether they be mainstream mortgages or later life lending options.
Networks can also help encourage brokers to have conversations with clients about later life options earlier, so they don’t get to retirement without a proper financial plan in place. With more emphasis being placed on good customer outcomes, there is no sense in avoiding the conversation if the person needs a product which is outside of a broker’s typical scope.
Final words
The later-life lending market is transforming. It cannot be ignored. Networks, lenders, and brokers alike must work in lockstep to ensure that our market can accommodate the diverse needs of the customers who need later-life lending support the most. The Comprehensive Conversations campaign has laid down the groundwork; now is the time for us to consider a person’s financial needs as a continuum of lifetime lending and remove silos from our industry.
First published in the FT Adviser on 8th May 2024