A combination of increasing longevity and cashflow problems is likely to spur “rapid” growth in the equity release market for the second half of this year, according to Lloyds Banking Group’s managing director for intermediaries.
Mike Jones told FTAdviser that mortgage lenders are being forced to evolve in the face of widespread change in its borrowers circumstances.
Over the next decade, the population of over 65s is expected to rise by 51 per cent, he pointed out.
Halifax research suggesting more than one in 20 young people still expect to be paying a mortgage beyond the age of 70, with the average age of a first-time buyer being over 30 and one in four taking up a 35-year mortgage term.
In response, Halifax Intermediaries extended its lending to those in retirement to 70-year-olds back in April, reflecting the increasing number of people who remain in work beyond the state pension age.
“Lenders are having to continually review products to ensure they reflect the needs of a changing homeowner demographic, including helping plug the gap between required and actual retirement income which is expected to increase over time given current savings rates and increased longevity,” stated Mr Jones.
“Many retirees have savings locked in their homes - ‘property rich’ and ‘cash poor’ - without an affordable way to fund retirement, people are forced to work longer or have a lower than expected standard of living in later life.
“Meanwhile final salary pensions are becoming a thing of the past, so more lenders are recognising that people are working longer and paying mortgages beyond what would have traditionally been regarded as retirement age.”
He said these trends had led some insurers and banks back into the equity release market, in particular Santander partnering up with another recent entrant Legal & General.
“It is interesting to see Santander creating a solution for their customers with mortgage balances remaining at the point of retirement,” stated Mr Jones. “It seems likely that the rapid growth of the equity release market is a trend that will continue into 2017.”
The latest figures from the Equity Release Council showed homeowners over the age of 55 withdrew a record £8.2m of housing wealth every working day from April to June, as quarterly equity release lending surged past £500m for the first time since it began keeping records.
Dean Mirfin, technical director at Key Retirement, said the industry is approaching a perfect storm.
“Interest rates for lifetime mortgages are at the lowest levels we have experienced in 18 years, this comes at the same time as demand for equity release reaches new heights and will continue to do so,” he stated.
“Mike’s point re Santander is very relevant, and we absolutely expect others to follow suit.
Adam Carnall, head of partnerships at Age Partnership, said he has seen a significant rise in the number of clients with interest-only mortgage maturities worried about their options, something that will only increase into 2017 and beyond.
“The reality is that lifetime mortgages are not a turnkey solution for all, and whilst we are now seeing sub 4 per cent rates fixed for life, interest rates only meet half the need of many, so developments in the available LTVs and further innovation in hybrid lifetime mortgages would be most welcome,” he said.
Mr Mirfin has previously criticised the ERC for holding back innovation for interest-only borrowers with its strict rules, while the likes of Hodge Lifetime has already developed ‘hybrid’ products which sit outside the industry’s official standards.
peter.walker@ft.com
