While equity release offers later life clients the biggest potential to increase assets it is still not part of the mainstream conversation with advisers, says Bruno Meiller, director of products and direct channels at Legal & General Home Finance.
“I believe the [Financial Conduct Authority] is acting correctly when they say they have a specific set of rules for equity release, given what happened in the past and that it is slightly different from a mortgage.
“But by having that differentiating set of regulations and requirements for equity release... that causes a few advisers to shy away from that industry in order to avoid the regulatory risk,” says Mr Meiller.
He continues: “That then becomes the chicken and the egg problem; if you do not discuss this, the industry will never become mainstream, but because the industry is not mainstream they do not discuss it and that causes the industry to slow down.”
He adds: “So what we are doing is to try and sit down with those brokers through all of our fronts... and talk to advisers about equity release.”
In his current role, Mr Meiller is responsible for looking after and launching lifetime products and product innovations for the lending business of Legal & General.
In total, Mr Meiller has more than 14 years’ industry experience, from markets including the UK, Brazil and Mozambique.
He says this international experience has given him a unique perspective, but that he believes the societal problems that financial services are trying to solve are the same everywhere.
Why later life lending is on the rise
According to the Equity Release Council’s spring 2019 market report, published April 2, demand for equity release continued to grow across all UK regions and lifetime mortgages in particular saw a rise of 25 per cent from 2017 to 2018.
According to Mr Meiller, as well as improvements in life expectancy, there are a couple of key drivers behind this growth.
He says: “Slightly older customers are feeling the pressure of trying to support their family members.
“But not everyone has had the opportunity to build sufficient assets or liquid assets in their pension pots or savings.”
He also notes that lending into retirement on an unsecured basis – any type of lending where this no collateral – is growing much faster in the UK than in other parts of the world.
He continues: “The second important driver is that people simply do not have sufficient pensions or sufficient planning, and so borrowing to support their lifestyle or needs in later life then becomes very important.”
He explains: “Lending, like everything in life, is good up until a certain point and over-stretching is always stressful.”
He continues: “But if we allow this to happen in later life there are fewer options for customers at that stage of their lives to make up for the excessive debts that they created.”
Technology is changing the industry and the way people are interacting with financial services, especially banks, according to Mr Meiller.
For younger generations, the way they generate income is changing rapidly.
He explains: “The mix of income is changing and it is important that the financial system adjusts and adapts to it to create solutions.”
Mr Meiller adds: “I think the unsecured lending – credit cards, overdrafts and personal loans – is probably the next industry to be disrupted.”
He also admits Legal & General is constantly looking to improve the entire value chain.
He says: “The ability to consolidate different information from different sources will enable us to see how customers have made their income so far, how responsible they are with their personal finance, and how they would cope with the repayment of a loan over time.
“We are working very closely with the regulator to see how we as a firm can support more customers with different product types.”
Equity release: biggest potential growth area
According to Mr Meiller, some 10 per cent of all the mortgages in 2017 were secured for over 55-years-old, but when looking at Office for National Statistics data, almost 20 per cent of the population in the UK today is over 55.
Mr Meiller says this means there is an under indexing of customers in later life lending.
However, he says “normalisation” will mean this area continues to grow, with the biggest potential growth being in equity release.
The Equity Release Council recently urged the industry and regulators to promote equity release more to help deal with the rise in the number of retirees needing a cash boost.
Mr Meiller says: “But the industry is still struggling with its reputation from the past when the product was not as well protected and put together and clear as transparent for customers.”
Nevertheless, he says the industry has overcome some of the hurdles.
He says: “I do not think any other part of the financial industry as grown four-fold in five years, so it is truly spectacular growth.
“It just goes to show that it is not out of the blue, there is a suppressed demand in this space [now being] served because we are overcoming the barriers that were put there in the past.”
Victoria Ticha is a features writer at Financial Adviser and FTAdviser.com
