The later life mortgage market “came of age” in 2021, according to Knight Frank’s high-net-worth equity release boss.
David Forsdyke told FTAdviser his industry has finally shaken the “stigma” of scandals and customer debt it has carried since the 1980s.
Forsdyke, a former FCA employee who helped put together the Mortgage Market Review, said older homeowners now had a far more positive understanding of how equity release could help them manage their wealth and plan for inheritance tax.
“2021 was the year the later life finance market really came of age,” he said. “Lenders from all quarters have introduced or improved their offerings for older homeowners, and it is clear equity release no longer carries the stigma it once did.”
Forsdyke continued: “Homeowner attitudes have shifted with many now recognising the multiple benefits of unlocking their property wealth in later life – whether that’s to improve their lifestyle, help their children financially or to benefit from the tax advantages it can bring.
“Clients and advisers alike are keen to capitalise on the changes seen over the last year in order to restructure their finances more efficiently, create new revenue streams or to pass on wealth to their children more effectively.”
Some 52 per cent of mortgage lending to homeowners this year came with terms which extended beyond the main borrower’s 65th birthday - marking the first year such a proportion has exceeded 50 per cent.
“To put that into context, it was as low as a third as recently as 2014,” said Forsdyke.
The high-net worth adviser said his team had seen clients “genuinely embrace and adapt” to new ways of communicating, despite the average Knight Frank Finance client being in their 60s or 70s.
“This has enabled the market to thrive,” said Forsdyke. “Our clients have embraced new ways to connect with us through platforms like Zoom, and have also adapted quickly to shifting technology that allows us to collect electronic signatures, for example.”
At Knight Frank, Forsdyke’s later life finance team advise on equity release loans averaging around £500,000, with average property values sitting close to the £2m mark.
Over the course of the year, despite a lack of new regulation, Forsdyke acknowledged the extent of product innovation the sector enjoyed.
As early as June, the number of equity release products available hit a 15-year high at 769.
“We have seen some significant improvements within the market that ultimately make it easier for homeowners to release equity in their properties,” said Forsdyke, citing the fact that all later-life lenders now offer fixed early repayment charges as well as penalty-free overpayments.
“This is a massive shift for the whole industry,” he explained. “Essentially, the sector has self-regulated by getting rid of the unknown variable of early repayment charges, which have caused headaches in the past. These are big, positive changes that are rippling through the market.”
Wealth managers will take note
In theory, the sooner a client can extract money from their estate, the better they can plan for IHT.
While a person’s pension isn't usually part of their taxable estate, property can be taxed at up to 40 per cent, meaning drawing money out of a property early can avoid some of this tax.
This is why Forsdyke anticipates a growing number of wealth managers, as well as other third parties, taking more notice of the products equity release lenders offered.
“Looking ahead, we anticipate that in 2022 there will be an ever-greater need for advice relating to later life financing,” he said.
“Shifting pension provisions, maturing interest-only mortgages, lower costs and changing attitudes are all combining to drive up demand from the over 55s.
“We are already engaging with a growing number of wealth managers, law firms, private offices and financial planners who are beginning to recognise just how useful a tool equity release and other forms of borrowing can be for their HNW clients.”
While these third parties might be interested, Forsdyke highlighted the “knowledge gaps” they had regarding how best to put these products into action.
“We are playing a key role in educating financial professionals and their clients about how releasing equity locked up in property can be used effectively,” he explained - be that to reduce potential tax burdens, improve cash flow, create liquidity, or pass on wealth to the next generation.
Later life mortgage rates began to climb back in October, raising concerns amidst advisers for borrowers.
But with the economic recovery no longer anticipated to be as quick as previously predicted, many lenders had slowed or delayed plans to put their rates up, with some even dropping them back down at the tail end of November.
For that reason, the high-net worth advice specialist anticipated headline rates in lifetime mortgage borrowing to move above 3.5 per cent over the course of the next 12 months.
ruby.hinchliffe@ft.com
