The idea of buying a house when you’re 20, moving once in your life and maybe clearing your mortgage in your mid-forties is less achievable than it once was.
Home ownership has not suddenly become a bad idea but is no longer the simple matter it once was.
Many people are predicting doom and gloom for the future but periods of difficulty often produce the brightest innovations to overcome the challenges we face.
The industry needs to take a fresh look at how we are supplying financial services to people of different ages, and how we can help them to achieve their aims of owning a property.
A mortgage for life
People will adapt to the fact that they will be paying a mortgage for longer than the 25 years that our parents expected.
Forty-year mortgages will be more common and maybe there will be some life-long mortgages.
In the same way that some students never expect to pay off their loans, mortgages could go the same way.
However, the housing assets gained will be worth much more than those of our parents, and could be the source of income for retirement or for the housing of future generations.
Equity release acquired a terrible name just over 20 years ago, however the world has moved on and it’s a real option for people today.
I expect that product development based on needs rather than short-term income will produce major areas of innovation in this space.
Lenders reward loyalty
Mortgages will no longer be a product on their own.
Currently, home owners are always looking for the best deal and switching between products. This is time consuming, and also expensive for the lender.
As Open Banking provides more context and analysis of people’s lifestyles and expenditure, lenders will understand better who they are dealing with and be able to offer bespoke pricing.
This will reward loyalty and prudence and customers won’t need to look around so much.
The churn costs of managing a mortgage book that is constantly revolving will be reduced and as a result, lenders could be in a position to reduce the costs.
Brokers become financial planners
This change could feel like a threat to brokers. After all, their purpose at present is to hunt out the best deal for their customers on a regular basis.
However, the role of brokers could change as they too evolve into genuine financial planners, helping the nation’s home owners plan their finances.
A forty- to fifty-year time horizon will become the norm rather than focusing on a product for the next couple of years.
Financial planning legislation has failed in recent years, with the unintended consequence of removing advice from the reach of the mass market.
Only the wealthy now have access to good advice, but as the complexity of financial arrangements increases, I suspect the regulator will re-think the approach.
This will open up a new segment for those with skills and experience in financial advising.
I see a big role for brokers in the future as they look to build long-term strategies for people outside the usual constraints of product selection.
And I think they will thrive in an environment where lenders and brokers share more data and collaborate on designing products for complex needs.
When will this future arrive?
Many commentators I read create headlines by proclaiming that rapid and fundamental shifts are just around the corner.
Experience tells me that change in industry often happens more slowly than people predict, but that shouldn’t be reason to wait.
Planning to be at the forefront, rather than lagging behind, pays dividends in the long term.