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Potential base rate hike calls for consideration of later life lending options – Wilson

by: Stuart Wilson, CEO at Air Group
  • 15/10/2021
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Potential base rate hike calls for consideration of later life lending options – Wilson
This is an interesting time for the country with a number of issues combining to present some difficult decisions, particularly for the government, Treasury and the Bank of England.


Rising inflation is focusing the minds of many economists and policy makers, especially as the bank has already warned that it will rise to more than four per cent this winter, pushed higher by utility price increases and the cost of many staples going up. 

For those on fixed incomes such as pensioners a rise in inflation is more difficult to cover. The recent ‘retirement living standards’ data from the Pension and Lifetime Savings Association shows an increased income requirement for those wanting each of the three living standard levels – minimum, moderate and comfortable. 

Couples, for instance, will need an extra £2,200 per year to keep up a comfortable lifestyle. Again, when you’re on a fixed income where do you find the money to do this? And these are of course only averages, as someone in London is likely to need more income than someone in Penrith. 

At the same time, we’re all aware that those retirees who own their homes are likely to have seen a significant increase in values over recent years, and there may be more openness to accessing the increased equity in order to fund lifestyle choices and to make retirement more comfortable.  


Solving utility problems 

It’s one of my major bugbears in this profession that we still, for example, see ‘energy poverty’ among retired homeowners when there are options to access that property’s value to deal with this.  

Given what we are seeing in the wholesale gas markets, for example, and what has happened to a growing number of utility providers, it is plainly obvious that we’re all going to be paying more for our utility bills for some time to come.  

Again, when you don’t have the opportunity to increase your income, where might you look in order to generate the money required? 


Breaking stigmas 

I read a recent survey which suggested there is a reluctance among some older homeowners to consider equity release because they are worried about what their family members might say. They are concerned they won’t approve. 

It’s why advisers often work with the client’s family to take them through the equity release journey along with the client. However, ultimately it is the client who will make the decision and, to my mind, if it’s the difference between ensuring that individual can have the money to cover their bills and to maintain if not improve improve their standard of living, then they should not be worried about seeking the approval of their relatives, friends or anyone else. 

A rise in inflation may be temporary but it needs to be considered at least over the medium term. 


Preparing for base rate changes 

Indeed, policymaker action in this area – which is likely to mean an increase in interest rates to try and get inflation under control – is also going to have repercussions in terms of the rates of borrowing available.  

Now may well be the best time for those older borrowers to consider accessing some of the product rates currently available.  

Those who are not suitable for equity release might still want to look at either retirement interest-only (RIO) options or mortgages with a higher maximum age. If rates are likely to be raised – the market appears to be pricing in a base rate increase before Christmas – then the ultra-competitive rates we are currently seeing might start to inch up. 

Overall, advisers are likely to be pushing at an open door in terms of older borrower requirements and how the retired on fixed incomes look to cover off these increases in costs.  

The need to access funding is already there, and they may now be more willing to utilise their property – it is up to the advisory community to provide the right solutions for these needs.  


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