'While cost of living continues to bite advisers must show their value'

While some more affluent clients may be able to manage double-digit inflation and rising interest rates fairly easily, the recent Financial Conduct Authority data highlights what these challenges mean to the nation as a whole.

The FCA estimates around 11mn people are struggling to pay debts and bills, with high energy prices and rising food prices adding to the challenges.

Key Later Life Finance’s own data supports this, showing nearly a third (30 per cent) of over-55s believe their ability to repay their mortgage will be hindered due to the cost of living crisis.

The challenges facing homeowners mean that mortgage and equity release advisers are ideally placed to demonstrate true value.

However, this is not just unique to the older age groups, with the FCA’s research stating that nearly a third (29 per cent) of all homeowners have seen payments increase in the six months to January. 

So whether you are newly onto the property ladder, or an older borrower with an ambition to clear your mortgage, the cost of living crisis is definitely being felt. 

While I am loathe to use the word 'opportunity' at this moment, the challenges facing homeowners mean that mortgage and equity release advisers are ideally placed to demonstrate the true value of the service that they offer.

We are not magicians, and the prevailing product/rate environment may restrict the options available, but sometimes I feel the term ‘broker’ can underplay the support we provide customers in finding appropriate solutions for their individual circumstances.

And the circumstances we come across at the moment are often tricky. 

Although Moneyfacts headline mortgage rates are better than following the September "mini"-Budget, many borrowers – especially those stuck on their lender's standard variable rate  – are worried.  

As I write this at the end of June, the average two-year fixed rate mortgage is 6.44 per cent and the five-year fixed rate deal is lower at 5.79 per cent, with about 4,400 products to choose from. 

When you consider that in 2021 the average two-year fixed rate was 2.57 per cent and the average five-year deal stood at 2.91 per cent, you can understand these concerns. 

We are not magicians, but we need to be ready to use all our knowledge and skills.

To put this in perspective, it would mean that someone moving £200,000 from a 2.57 per cent two-year fix to a 6.44 per cent two-year fix would see their mortgage payment leap from about £900 to about £1,340. 

Not an easy change to swallow when utility bills are increasing, food costs have rocketed and there is industrial action due to salary stagnation.

There is also the further concern that the 11mn FCA headline figure is potentially only the tip of the iceberg as it does not include millions more who are only a big bill, a missed bonus or a pay cut from having to make tough choices.

So what can advisers do?

As I said, we are not magicians, but the FCA is encouraging people to ask for help and to access advice wherever possible, so we need to be ready to use all our knowledge and skills to help customers make choices that balance short-term needs with longer-term implications.

Many mainstream mortgage advisers are already extremely proactive in engaging with existing customers about their options – particularly as fixed-rate deals come to an end or when new products launch that remove affordability barriers – something that is likely to become even more important as the new government support measures come into play.

However, when dealing with over-55s these engagements should also cover a broader field of vision to consider whether an alternative later-life lending product such as equity release or a retirement interest-only mortgage may meet their needs.  

While rates on lifetime mortgages can be higher than residential mortgages, they are fixed for life and there is no affordability assessment. With the recent return of the Apex product, early repayment charges now finish after as little as four years – so when rates do come down, remortgaging is a real possibility.

There is also the option to manage borrowing to avoid the balance building up with customers able to serve interest or to make ad hoc capital repayments.

We need to look beyond this and be more open to different options, to take the time to think outside our silos.

On most plans, they can stop or start these repayments depending on personal circumstances, which will no doubt be a relief for those on variable incomes or those who have seen expenses increase.

It is important that specialist equity release advisers cover all these flexible features with customers and that, where a lifetime mortgage is not a suitable option, they can signpost into solutions – this may mean referrals to debt management experts, to wealth management/pension advisers or to those with specialist knowledge around funding long-term care. 

The FCA figures are unlikely to come as a surprise to advisers who speak to customers every day and who perhaps have found their own financial security rocked by lower volumes and the current economy.  

However, we need to look beyond this and be more open to different options, to take the time to think outside our silos, to ensure we have referral arrangements with trusted partners and, most of all, to be proactive in reaching out to customers to make them aware that we are there to support them through these challenges. 

We can not wave a magic wand and solve the cost of living crisis, but we can ensure that we promote the value of advice and that we continue to champion the outcomes that we deliver for our customers.

Will Hale is chief executive at Key Later Life Finance