Mortgages  

CML reveals what puts lenders off equity release

CML reveals what puts lenders off equity release

Leeds Building Society’s chief executive has complained of the many technical hurdles around existing advice models which are preventing traditional lenders entering the lifetime mortgage market.

Peter Hill, also the Council of Mortgage Lenders’ chairman, explained these stem from differences between the regulatory structures surrounding investment, pension and mortgage advice.

“Creating hybrid products is difficult, as it makes for a big mouthful to swallow,” he stated.

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Expansion of the equity release sector has been held back by the lack of qualified advisers, with Bower Retirement Services arguing last year that an extra 800 qualified specialists were required by 2020 to meet growing demand.

Meanwhile in May, a Financial Conduct Authority paper suggested consumers looking to take out a mortgage should have access to “holistic advice and guidance” to help them consider borrowing in the context of other circumstances and goals such as pensions, possible future care needs and inheritance.

Mortgage advisers and networks reacted by pointing out how unrealistic this would be in practice, arguing it could lead to intermediaries becoming a ‘jack of all trades and master of none’.

But the Society of Mortgage Professionals’ head of professional development Lee Travis stated it could be possible through a combination of qualifications, ongoing CPD and the ability to refer to an appropriate adviser.

Mr Travis told FTAdviser, that with the introduction of a new advice model that does not require any affordability assessment, one would guess even more time will be spent on adapting systems.

“Therefore, even with the best intentions and ideas, products may not be in the market as soon as consumers may hope, and it could be that smaller firms will be quicker to adapt their systems to any new products in this area than larger ones.

“Similarly, this could pose a challenge for mortgage advisers, who since the implementation of the Mortgage Market Review have been used to having a major focus on affordability assessments, taking into account any changes for the duration of the mortgage,” he stated.

“Once new products are developed and come to market, there is an argument some mortgage-only advisers may not have enough ‘later life’ knowledge to ensure all areas of the customers’ circumstances have been fully considered, which was discussed in the FCA’s recent occasional paper.”

Another problem faced by lenders looking at older borrowers is dealing with the hedging of later life lending liabilities - things like morbidity risk for instance - for non-insurers without annuity books to fund from.

The CML’s Mr Hill pointed to examples from overseas which he urged the UK’s government to look at, in order to foster growth in the sector.

“The US uses a state-backed balance sheet system to provide guarantees, rather than providers using hedges which are hard to construct without an in-house annuity book, so equity release innovation is expensive for non-insurers.”

Late last year the CML formally asked the HM Treasury to consider various ‘calls to action’ in a paper on retirement borrowing, including “drawing on how other governments in an international context have sought to address the housing and borrowing needs of older borrowers”, suggesting whether “state-backed guarantees of the type used in the US and South Korea might be worth exploring”.