It is disappointing to hear that many borrowers are trapped in their existing mortgage deal and unable to switch deals or lender. Given the number of lenders and options available in the mortgage space, it’s pretty appalling that mortgage prisoners remain such a large and growing problem for the industry.
We urgently need to overhaul how these borrowers are being treated, as they deserve to receive better support from mortgage lenders. In many cases, the regulator and lenders are still failing to act in the best interest of their mortgage customers, which is something that needs to be addressed in order to save the industry from being tarnished with the ‘irresponsible lending’ brush.
One solution for many of these mortgage prisoners is equity release. For example, there are approximately 40,000 interest-only mortgages maturing each year with homeowners aged 65 years and over. We expect this number to only increase over the coming years.
Another example is those who are coming to the end of their current deal and face going on to their lenders standard variable rate (SVR). While lenders love these clients (as they will be on a higher interest rate, resulting in higher repayments), advisers should avoid having their customers fall onto lenders’ SVRs, since they are usually not in the best interest of the customer.
Equity release can be used for a number of purposes, including boosting a retirement pot, paying for a holiday, a new car or paying off existing debt. It can also help prevent people from falling into serious trouble with their current lender or having to downsize or move away from a beloved family home in order to repay the debt.
In recent years it has been considerably harder for those at or rapidly approaching retirement to get lending through traditional means, with many borrowers completely unaware of equity release or unsure about how it can be used.
Under the watchful eye of the Equity Release Council, this market has had standards in place for 25 years to ensure products are safe and reliable and that they conform to the best practices of the sector. In the lifetime mortgages sector, we feel it is important that clients who are considering equity release have sought professional financial advice, so that they have knowledge of what they are entering into and are assured it is a safe lending alternative.
Releasing equity will not be for everyone. There will be some borrowers who will need a loan-to-value ratio that is beyond the current market ceiling. In this case, they may wish to downsize to release additional funds or may have existing savings and investments that can be freed up.
Equity release is a specialised market, which means it requires financial advisers to have a specific qualification and expert knowledge of the equity release market, especially with regards to things such as tested state benefits, which can be affected if someone takes out a lifetime mortgage. As such, financial advisers who may not be familiar with this market should tread carefully.
However, this doesn’t mean they cannot bring the subject up with their clients. Advisers need to ensure they raise lifetime mortgages as an option at the pre-, at- and in- retirement conversations, to make sure their clients are fully aware of how these products can make life better for retirees. There are lots of referral schemes in place through specialist advice firms that allow advisers to pass over clients to a safe pair of hands and receive part of the commission.
Starting these conversations early on is vital, so now is the time for advisers to identify the customers who are in their 50s and 60s so they can approach them for a review about their retirement planning. Equity release can be a slower burner. People need to take their time to come to a decision, as such important matters should not be rushed.
