Joining Aviva and specialist lender More2life, Just intends to guide advisers away from standard equity release offerings and towards more personalised solutions for their clients - something Steve Lowe, Just’s director of communications, said was “high on the regulator’s agenda”.
The lender will encourage advisers to capture 24 answers to questions around their clients’ health.
Currently, advisers using Just’s products look at ‘need’, age, and how much they want to borrow.
“Advisers are used to collecting this data for protection and annuities,” Lowe told FTAdviser. Despite some lenders already providing medically underwritten equity release loans, Lowe reckons the phenomenon is still yet to enjoy mass adoption.
“Health is at the heart of financial planning, but it hasn’t hit this industry [equity release] yet.”
The lender estimates six in 10 of its customers will benefit from its underwriting integration, which is available across its ‘Just For You’ lifetime mortgage range.
Customers can land a better interest rate on their loan and a higher loan to value.
Just uses the example of an 81-year-old client in a Midlands-based two-bedroom house valued at £180,000. With medical underwriting, Just said they could access a 3.18 interest rate, compared to 3.71 per cent rate without.
With a cheaper rate, the customer saved £10,628 on the overall cost of borrowing.
By medically underwriting a loan, a lender is effectively adding years to the customer’s age. The shorter the lifetime of the loan, the cheaper it is for Just to lend on
But there are drawbacks to this product. “It’s been around a long time, but not every lender does it,” said Alan Lakey, director of CIExpert.
The long-time adviser, who has seen his equity release business grow year on year, recalled one instance where a client couldn’t get access to this type of product because they “weren’t ill enough”.
"They’d had a heart attack and suffered from high blood pressure. They were 62, the medical underwriting pushed this age up to 67. But it needed to go up to 70. Essentially, the lender was saying ‘you’re not ill enough’."
How ill a client is can still be a “matter of conjecture”, despite the questionnaires lenders come up with, according to Lakey.
“You can’t pin it down. So they [lenders] are cautious, because they fear customers might have a normal life span. It has to be something serious and life-threatening”
Lakey’s 62-year-old client got their loan, but they didn’t get the benefits they wanted - such as the specific sum.
Whilst there are drawbacks to medically underwriting a loan, Just’s Lowe warned there will be an increasing risk to advisers if they don’t recommend it.
“They’re not giving the client the best deal if they don’t medically underwrite the loan,” he explained.
Low continued: “It will be financial advisers which lead this revolution. We’re giving them the equipment and the tools. It’s a crystal clear change for advisers. They need to be able to justify why they haven’t done this.”
Jane Hanlon, a mortgage club manager at Advise Wise, agreed. “Compliance law will hone in on advisers if they ignore this option. Rates are important. Whilst cheap isn’t always best, it’s always very important.”
She added: “There is a knock-on impact of compound interest. I’ve seen complaints of this very nature come across my desk.”
Hanlon told FTAdviser that Just’s product change “is very significant”.
“It’s lending based from a completely different perspective. Yes, flexible policies come with more work for advisers. But we know as an industry one size doesn’t fit all anymore.”
Hanlon added Just was “more advanced technologically” and “more automated” than other lenders currently offering this integration, which still require onerous paperwork.
One barrier for advisers to recommend these products is if they have joint clients. Hanlon said because the uplift for a reduced rate only applies to the youngest in a couple - who likely doesn’t have the medical condition - it can be hard for clients in this scenario to benefit from it at all.
Currently, the Equity Release Council holds up a 24-point checklist for advisers which includes a point on taking a clients’ health into consideration, specifically their “health and life expectancy”.
ruby.hinchliffe@ft.com
