For a start, AKG Financial Analytics’ research paper on the UK later life market, perhaps for the first time, gives us both a definition of later life lending and what it actually might be worth.
Firstly, the definition – ‘Standard, retirement interest-only (RIO) or equity release mortgages for borrowers over the age of 55 with terms that extend into, or start during, retirement’.
Now, on the face of it, many practitioners and stakeholders will say, ‘Of course that’s the definition’, but it’s not been widely agreed upon before, and there has been a tendency to look at this sector purely within the confines of equity release, even if we’re all acutely aware that the sector is much broader than this.
Introducing that definition also leads on to being able to assess its worth, and unsurprisingly, it goes way beyond the £6bn-ish of lending we might see purely in the equity release space in 2022.
AKG estimates that in 2021, £54.9bn worth of new later life lending and product switching took place, while it estimates the entire later life lending market is worth up to £153.9bn.
Later life lending is more than equity release
Why does this matter? Well, up until relatively recently we have tended to believe, as mentioned, that later life lending was simply equity release, but that due to the relatively small amounts of business being written, that it was a niche market, with a niche attraction for both advisers and providers.
Again, for us working within the space, we could see it was moving beyond that and the sector was growing strongly, but I suspect there were few of us who could put a figure on the entire market, let alone the business being achieved in any given year. And, if we could, I doubt it would be at the levels cited above.
This makes a huge difference, because it shows the significant amount of lending that has already taken place, but it also shows the potential that exists, and it generates a pathway for new entrants, both from an adviser and a provider point of view.
Ongoing education vital for later life growth
Now, of course, there are still obstacles to overcome here, and the report doesn’t shy away from highlighting those, particularly in terms of the ongoing education that is going to be required if later life lending is going to continue on this trajectory.
Those of us within the sector might think we have done a relatively good job in terms of both adviser and consumer education, but what strikes me from this report, and other research into this area, are the significant barriers that still exist when it comes to later life lending particularly around getting consumers comfortable with it.
The Equity Release Council continues to do sterling work in this area, but we know the sector comes with a large amount of historical baggage which can weigh heavily on consumers, even when it is the most suitable solution for their needs.
Standard Life Home Finance research into this area highlights the questions that are often raised around security of tenure, inheritance concerns, the expense and the complexity of the process, and of course the sector is still fighting a reputation gained over 30 years ago.
That said, we have the answers to alleviate all those concerns and the broader range of products we have now, the ways they can be used, the criteria elements that can ensure the client gets the money and the peace of mind they want, all add up to a position where these products should not be feared at all.
But, consumers are not going to know this unless we tell them. We recently held our national conference and the message that was heard time and time again around developing the sector, helping more customers, and advisers’ role within it, was about the ongoing need for education.
There can be no doubts that education will help us build on the very firm foundations we have in place and will open up the later life lending sector to far more practitioners and far more consumers who can benefit from it.