Despite challenging economic conditions in 2022, this year has been a “record year” for later-life lenders, according to the boss of Air Club.
Stuart Wilson, chair of the later-life specialist, said the difficulties presented this year have forced the sector to become more flexible and as a result brokers will “continue to play a vital role” in helping customers understand all that is on offer in the year ahead.
Wilson pointed to September’s “mini” Budget as a significant event impacting the sector this year, with interest rates rising sharply in its aftermath.
As a result, some lenders pulled products they felt they could no longer responsibly support.
The number of equity release products available on the market shrunk from 582 in the third quarter of this year to 317 in October.
However, Wilson noted that product numbers actually remain above pre-pandemic levels - 314 products were available at the end of 2019 - and also highlighted that what is on offer now, generally has more flexible features.
“According to Equity Release Council figures, by the end of 2022 it is reasonable to expect that more than 100,000 new or existing customers might look to use the wealth built up in their property through equity release.
"This trend towards growth in the later life sector is something we anticipate will continue into 2023, as product rates gradually fall,” Wilson said.
He added: “Advisers too, anticipate there will be more enquiries into later life lending products in the new year.”
More than half of advisers (51 per cent) reported an increase in later-life lending queries in the last 12 months, while 77 per cent predict a rise in enquiries in the next two to five years, research from AKG showed.
A year of innovation
According to Wilson, 2022 was a year that continued to see innovation to support customers across the sector.
“For example, we saw the Equity Release Council announce its fifth product standard in March 2022 which gave new customers the ability to make ERC-free ad hoc payments within lenders criteria,” Wilson recalled.
He also noted that the availability of features like inheritance protection and downsizing protection has also grown this year as “increasing numbers of customers sought out products with more flexibility and protection suited to their individual needs”.
Consumer duty
In addition to this, brokers have had to come to terms with the consumer duty.
“While there is no doubt that many in the later life lending sector already meet many of the requirements, there is a difference between including an approach into your advice and ensuring this is evidenced as well as clearly documented which is sure to be a pain point,” Wilson said.
According to research from Air Club almost a fifth (17 per cent) of advisers said they were unprepared for the regulatory changes, while a further 8 per cent were unsure about how prepared they were.
“Perhaps more concerning though, was that 5 per cent of advisers, who may be relying on their networks or firm’s principles, didn’t know what changes were being made to consumer duty,” Wilson said.
He added: “It’s already a busy time and many will need support to help them ensure they are in step with these latest changes, which come into force. Mortgage clubs and sourcing providers will be there to help by providing the tools and information advisers will need to be on the right side of the new regulatory requirements."
Looking to the year ahead, Wilson predicts that the consumer duty will encourage more organisations to consider referral relationships “so they can clearly evidence hand-offs should their clients need them”.
He also noted that the cut in stamp duty, that will remain in place until 2025, will impact the market.
Because it takes place against a housing market that is predicted to fall over the next 12-months, he believes a lot of families will be “scratching their collective heads”.
“Do we release equity to get children on the property ladder while prices are lower but our home is also worth less? Or do we wait and hope that affordability improves as does house prices?,” Wilson asked.
“There is no right answer, just the one that works for each individual and their family. With the cost of living continuing to bite, we may well also continue to see older family members providing more simple support with the repayment of debts, funding for weddings and cars.”
2023 may also be a year that sees more late life lenders consider what they can to do to better support advisers, Wilson believes.
“It is something we have championed for many years, this market is crying out for better tools, systems and processes to ensure that advisers can focus on what they do best – supporting clients.
“Products and rates are changing too fast for advisers to sit on their hands. Lenders need to listen and in an uncertain market with a myriad of moving parts, those who can clearly show they have heard what advisers have said are likely to find that they are more likely to be considered than not.”
jane.matthews@ft.com
