The later life lending market is innovating

This article is part of
Guide to later life lending

The later life lending market is innovating

In the years leading up to the Covid-19 outbreak, providers in the later life lending market made huge strides forward in terms of product innovation.

Clients retiring today are likely to live longer than in previous generations but with smaller personal pensions and a much higher cost of living.

The flurry of product launches witnessed by financial advisers over the past decade is an acknowledgement of this shift. In short, lenders’ propositions have been hugely expanded to accommodate the modern retiree.

“It's been a pretty buoyant time for later life lenders as a whole,” explains Louise Bunce, head of proposition and marketing at Ipswich Building Society.

“There has been a great deal of product development with the introduction of RIO [retirement interest only], so advisers are no longer solely reliant on equity release for this group.”

Borrowing boom

Dave Harris, chief executive of more2life, acknowledges that the growth in later life borrowing has been driven by demographics, but he also notes that the explosion of new products have broadened the options available to clients.

He says: “Growing demand has also stemmed from an expanding range of products available in the market. In the space of just two years since January 2018, product choice in the market has increased by 42 per cent, according to the Equity Release Council’s latest market review.

“We have seen an increase in the number of flexible product features available and now – for example – customers who take out an equity release plan can make capital or interest repayments if they so wish.”

Ms Bunce says that other factors have also stimulated the popularity of later life lending in recent years, such as better retirement planning, mature borrowers buying their final property ahead of retirement, and individuals going part-time at work ahead of full retirement.

The arrival of Covid-19 has also led to a ripple effect in the lending markets.

As lenders to first-time buyers insist on higher initial deposits and lower loan to values, the so-called “Bank of Mum and Dad” has been asked to step in.

“With fewer higher LTV products available in the market, mortgage affordability tightening and first-time buyers joining the property market later, equity release allows family members to directly help first-time buyers get on the property ladder,” explains Phil Bailey, sales director at mortgage technology provider Twenty7Tec.

“Without wanting to sound morbid, it's also a good way to gift cash without waiting until you die. I can see equity release being used more and more to help people onto the property ladder and top up gaps in pensions, pay for holidays, home renovations and lifestyle changes.”

Product development

Market growth of later life lending products during 2019, while strong, was slightly slower than it had been in recent years.