Equity ReleaseJan 31 2019

How advisers can help clients with later life mortgage needs

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How advisers can help clients with later life mortgage needs

Knowing how to deal with these types of conversations, which may involve vulnerable clients, will be important for advisers.

It is also a reflection of how the industry is changing.

David Hollingworth, associate director, communications at L&C Mortgages, recalls: “Older borrowers became frustrated at the lack of mortgage options open to them, after criteria tightened following the Mortgage Market Review’s increased scrutiny of lending into retirement. 

The lending industry has perhaps been slow to react to this change but now it is beginning to change rapidly.Damian Thompson

“Lenders would continue to allow lending beyond expected retirement age but generally tightened their requirements around maximum age at the end of the mortgage term, often to 70 or 75.”

He acknowledges: “Criteria is now easing and the advent of retirement interest-only mortgages means that borrowers have a broader range of options to take them into later life where that’s appropriate.”

Older aspirations

What are the needs of these types of mortgage borrowers likely to be?

Damian Thompson, director of mortgages at Aldermore, observes the Baby Boomer generation is likely to have very different aspirations in their later years than previous generations had, particularly as they are living longer, healthier lives.

He says: “Some of these ambitions may require a boost in equity, such as household renovations after the kids have moved out, supporting the next generations of their family to get on the housing ladder, or help through higher education, assistance in beginning business ventures – or just simply looking to enjoy a more comfortable lifestyle. 

“In addition, there are a proportion of homeowners who are approaching the end of their interest-only mortgage term and do not yet have a method of repayment but want to stay in their homes.”

He recognises: “These needs are diverse in nature and require multiple solutions to cater to individual circumstances. The lending industry has perhaps been slow to react to this change but now it is beginning to change rapidly.”

There is certainly a range of mortgage products now available to older borrowers, as documented in feature one of this guide.

Education and awareness

But what do advisers need to bear in mind when dealing with clients who are likely to be older and may also be considered vulnerable, and who have later life mortgage needs?

Mr Hollingworth points out one of the main issues for these borrowers will be affordability.

“They will need to be able to demonstrate that they have adequate income to cover the mortgage – not just now but in the future as well,” he adds.

“That’s quite different to the option that a lifetime mortgage would open up to the homeowner, where no monthly payment would be required. A standard mortgage, or retirement interest-only product, will eat into their monthly income as a result and is likely to be key to their decision-making around product type.”

He urges advisers to understand the differences between retirement interest-only (Rio) and a standard mortgage to give clients the full range of options.

“It also helps to have that awareness of equity release, which some borrowers may find appropriate and should seek specialist advice,” Mr Hollingworth notes.

Mr Thompson agrees education and awareness of what is available should be a priority when it comes to advising these types of clients.

“Over the past year, the options open to over-50s have diversified,” he observes. 

“Alongside the typical equity release products on the market, Rios provide interest-only mortgages, with no defined end term and no minimum equity requirements, and repayment mortgage vehicles – like Aldermore’s later life lending products – broaden the choice available to those in, or about to be in, retirement.” 

Emma Walker, chief marketing officer at Lifesearch, urges advisers not to avoid some of the more difficult questions that later life mortgage borrowers might need to answer.

“Advisers need to keep up-to-date with the products that are available and not shy away from having discussions around, what would happen in the event of death or illness? How would a customer maintain their mortgage?” she says. 

“Advisers should discuss all the options that are on offer.”

For Stuart Wilson, corporate marketing director at more2life, suggests advisers assessing the suitability of equity release for clients should be aware of the many reasons a homeowner may want to choose this option.

“From the interest-only mortgage customer who is approaching retirement age with no way of repaying their debt, to the client struggling with mobility issues who needs to adapt their home, to those wanting to go on a once in a lifetime family holiday with their children and grandchildren, quality advice is becoming ever more important in achieving the best outcomes for every later life customer,” he notes.

Keeping up with the market

Steve Paterson, director of Teeside Money, provides a checklist for advisers who are considering or are already advising clients on later life mortgages.

He says:

  • I believe face-to-face visits are essential to assess if a client is vulnerable. To also ensure they fully understand the product, a face-to-face meeting is always the best way to explain and demonstrate why the advice and product is suitable. 
  • In addition, family involvement should always be offered and encouraged. Compared to a traditional mortgage more time needs to be spent on the client journey and more time should be offered for the decision to proceed.
  • Advisers should hold the necessary qualifications and this can be checked out via the FCA register. It is always preferable to choose an adviser who ‘goes that extra mile’ by being a member of the Equity Release Council. They work closely with lenders and advisers and all members agree high standards and levels of service. 
  • A thorough fact-finding process is key to ensuring that you know your customer.
  • Advisers must have up-to-date knowledge on the market place, not just the qualification.

It may be that having to acquire such specific knowledge means it is easier for an advice firm simply to be able to refer these types of queries to a specialist.

Mr Wilson says: “Advisers who, although qualified, spend little time advising on these products need to be aware of the rapidly changing face of the market and may be better placed to set up a referral relationship with a specialist if they don’t have the resource they need to monitor and action these developments.”

eleanor.duncan@ft.com