Could Nationwide’s entry into the equity release market mark a step-change for the later life lending sector? This was the question many brokers and advisers were asking as the building society became the biggest name to enter the growing market
The high street lending giant has announced that its lifetime mortgage product is part of an ongoing plan to address the needs of a changing and ageing population, and design products to support people in or approaching retirement.
The new range will be distributed exclusively via Age Solutions, which is part of the Age Partnership Group. There will be no upfront advice fee for the customer to pay, as Age Solutions will be paid a commission by Nationwide. The only additional cost to the applicant is the requirement to take independent legal advice.
Key points
- Nationwide has announced it is entering the equity release market.
- The strength of its brand could make equity release a more mainstream product.
- Strict rules in the sector are seen by many as a barrier to innovation.
Profile raising
The features in the Nationwide product are not vastly different from what is currently on the market. But what it will do, according to mortgage experts, is raise the profile of lifetime mortgages.
Georgina Smith, managing director of OneFamily Lifetime Mortgages, said: “It is interesting to note that while this is another well-established financial services brand entering the market, those that have gone before have been more traditionally associated with insurance and pensions.
“So this could be a really significant moment in that we are now also seeing a high street lender participate in the lifetime mortgage market in quite a robust way.”
Thus, Nationwide’s move could draw more mainstream lenders into the market. Tim Loy, chief executive at Age Partnership, said he was already aware of a number of other providers looking to enter.
Mr Loy added: “There are lots already engaged in the process of entering the market. Nationwide will also cause others to review their plans for equity release and plans for later life lending, and will encourage others into the market not considering it. It will push it up the agenda for larger organisations.”
Nationwide has said that working with Age Partnership has enabled it to launch into this new market in a controlled manner. This is an indication that Nationwide is dipping its toes in the water to start with.
Henry Jordan, Nationwide’s director of mortgages, said: “We are able to benefit from [Age Partnership’s] knowledge and experience in equity release, enabling us to test and learn as we assess the impact and profile of lending.”
Equity release has been increasing rapidly in recent years, but there is still room to grow.
According to latest figures from Key Retirement’s Equity Release Market Monitor, published in November, the total property wealth released by new customers in the three months to 1 October increased by 18 per cent to £749m when compared with the same period last year. Plan sales also climbed by 26 per cent to 10,477 in the same period.
Continuing growth
The continued growth of equity release and the wider later life lending sector is prompting the likes of Age Partnership to expand its team.
Mr Loy: “We have 135 advisers. Our plan is to increase that in the next two months to 200 advisers. We have 30 per cent market share in a rapidly growing market. It is our intention to become market leaders. There are changes afoot in the retirement market that have the potential to change things for the equity release market.”
If more mainstream lenders are planning to enter the market, it could be positive for buyers in the form of better competition. But how easy will it be?
For the vast majority of the big, mainstream lenders, their entire lending and financial structure is built around products with cashflow.
Dean Mirfin, group and technical director at Key Retirement, said this means they are less likely to get into the lifetime mortgage world with their own money, where they are not receiving monthly payments and they have no end date to the loan.
Mr Mirfin added: “It’s a monumental shift and you cannot fund it in the way you would fund mainstream lending, because everything about the cost of capital, in terms of swaps and how a lot of lenders fund their lending, is completely alien to the lifetime mortgage world.
“So the funding would have to come from somewhere else. Every time a new lender comes in, and certainly when someone of the size of Nationwide comes in, it has to make others think that if Nationwide is doing it, why aren’t they?
“But it is still that dichotomy of ‘if we do it, how will we fund it and is it something we want to be doing?’ They are in that sort of stranger ground. While a lot of it makes sense, the funding model is alien to it.”
Despite the demand for equity release products, the understandably strict rules in the sector are seen by many as a barrier to innovation to offer more flexible mortgage products.
According to the Key Retirement report, more than a quarter (26 per cent) of customers used equity release to help family and friends, up from 19 per cent in Q3 2016. The most common reason for releasing cash was to get homes retirement ready. Almost two-thirds (64 per cent) used the wealth for home and garden improvements.
Mr Mirfin said: “Lump sum plans are maintaining their share of the market, as they increasingly tend to be more appropriate for younger retirees looking to repay outstanding mortgages.”
Sector growth
The has noted the growth of the equity release sector and the need for greater flexibility in the later life lending market as a whole. Providers and advisers are currently awaiting the result of a Financial Conduct Authority (FCA) consultation into the removal of a regulatory barrier. This will allow interest-only mortgages for older consumers that will only be repaid on a specified life event, such as the customer’s death or move into residential care.
Mr Mirfin added: “Because it is, in effect, mainstream lending, come this rule change every lender could do it. What we do not know is how many lenders want mortgages with no end date on their own balance sheets.”
If the proposed changes come into force, equity release is still likely to be in demand owing to the number of retirees the product suits. The new retirement mortgages will not be affordable to everyone if the lenders want the monthly repayments straight away.
As such, it remains to be seen who the next big name in equity release will be, or if there will be one.
Ima Jackson-Obot is a features writer at Financial Adviser
