MortgagesJun 25 2020

The later life lending market is innovating

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The later life lending market is innovating

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.

We have seen an increase in the number of flexible product features available Dave Harris, More2Life

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.

However, the equity release market saw year-on-year growth of around 10 per cent between the first quarter of 2019 and a year earlier, according to the Best Advice Intelligence Later Life Lending report.

Mat Manser, a former national sales manager turned freelance business development consultant, says the size of the later life lending market has grown fourfold over the past decade.

“That is only going to continue,” he notes. “In the future, I can see the market broadening still further, where clients are able to take several products out during retirement.

“We will go from the current binary, once-only decision, to taking out two or three different styles of product over 20 or 30 years.”

The consensus among the industry experts interviewed for this piece was that the current pandemic is unlikely to dampen product innovation and market growth, even in the medium term.

Last-time buyer market

In anticipation of continued growth in the later life mortgages market, many providers have been holding educational webinars and podcasts.

Among them is Hodge, which has been hosting educational webinars to teach advisers and brokers how the market has broadened in recent years. The most recent series, in April, included a host of product-specific topics looking at the typical characteristics of later life customers and equity release and Rio products.

Emma Graham, director of business development at Hodge, says that she expects later life interest-only products, in particular, to go from strength to strength, noting that “both mainstream brokers and consumers [are] becoming more aware of the greater choice and flexibility these products offer them”.

She adds: “50+ consumers with mainstream interest-only mortgages coming to maturity will most definitely continue to be a target market, with maturities increasing year on year and set to peak in 2032.”

Ms Graham says that Hodge’s internal data suggests that “last-time buyer” purchases are increasing, as they look to use their equity reserves to buy their last home, together with borrowers releasing equity to fund home improvements.

She explains: “With many of us re-evaluating our homes after having spent a considerable amount of time in them during lockdown, we expect to see this continue to grow.

“As the furlough scheme comes to an end and many UK households find themselves in financial difficulties, we also expect to see family gifting increase.”

Richard Merrett, head of strategic development at SimplyBiz Mortgages, agrees that the months ahead are likely to see financial advisers dealing with growing demand once more.

“I believe that post-Covid, just as in the mainstream mortgage market, we will see an increase in the need for flexibility,” he predicts.

“It is highly likely that older borrowers will unfortunately need to help their children and grandchildren who have been adversely affected by the pandemic. In some instances, these may be short-term requirements, so flexibility will become increasingly important.”