It’s a truism in mortgages that the market changes as the country does, and the country changes as the market does. With inflation at its highest since the 1980s and interest rates spiking too, advisers’ clients and would-be borrowers are facing a very different landscape than even a year ago.
While equity release rates are not strictly fixed to the Bank of England base rate, as an investment vehicle which often sits behind products such as annuities or pensions, changes do have an impact on this market. As a result, many advisers are seeing clients who are more focused on the impact of interest rates than they have been for a long time.
Adaptations in the market
In the face of this interest, the market is evolving to offer a wide range of options and flexible products modelled to meet the new needs of 2022. Servicing debt to manage compound interest on an ongoing basis is very much on the agenda and the introduction of the new Equity Release Council Standard in April which guaranteed new customers the opportunity to make ad hoc repayments further underlines this.
We are also beginning to see more and more specialised products from 50-year mortgages in the conventional market to products with high loan to value (LTV) ratios in the later life space.
This is a great example of the market adapting to accommodate those individuals that would typically be locked out of equity release, such as interest-only borrowers and mortgage prisoners, because the LTV they need to borrow is simply too high.
Such products allow borrowers to repay their loan without threat of eviction, reduce their LTV, before moving to a more competitive product later down the line. Recently, More2life launched Apex which joins Canada Life’s offering at this end of the market.
While not suitable for all equity release customers, this can be a lifeline for some, and the early repayment charge period is only five years on the Apex product. Later life lending products have traditionally been seen as being “for life” but with continual product innovation and lenders like Aviva improving criteria, advisers can use a range of products over a customers lifetime to help them achieve what they want.
Innovating for different uses
As seen during the stamp duty holiday, using equity release to gift a house deposit is a tried and tested way of supporting intergenerational fairness. However, we are also seeing more flexible products used for a wide variety of financial gifting options.
Product innovation is also expanding into equity release for wealth management purposes, with new sectors of the IFA community considering qualifying for later life advice as a result.
Other lenders such as LV= are introducing interesting ‘value added’ services such as LV= Doctor Services which is a non-contractual benefit with both flexible Lifetime Mortgage and Lifetime Mortgage Lump Sum+ products which provides customers with access to medical advice which is quick, free and easy to access.
Of course, some of these flexible products will have higher interest rates so lenders can underwrite the risk of high LTVs or other value-add features for borrowers. But the fact remains that increased innovation boosts the chance for customers to find the right product for their individual circumstances.
But some things never change
Here, however, is one way in which the market isn’t changing – and shouldn’t change.
All of this innovation is filtered through the common sense and expert knowledge of the adviser community before reaching consumers.
New products such as high LTV equity release or 50-year mortgages are a handy gateway for people previously locked out of borrowing, but also benefit from the safeguard of an adviser telling their client when is best to switch to more conventional products.
Some things are naturally set to change as we enter a high interest rate environment for the first time in decades. However, what’s set in stone is the value of expert financial advice from the UK’s IFA community.
