In one fell swoop it can often feel like a lot of hard work can be undone as rates suddenly shoot upwards, as happened as we headed into Q4 of 2022.
I’ve talked about Liz Truss and her dreaded mini Budget a few times in the trades recently, and frankly I think we should try and leave that in the past now.
But the fact is that Truss and Kwarteng’s ‘Growth Plan’ – yes, that was quite literally its official name – has intensified an already difficult cost of living crisis and impacted borrowers heavily as it caused, in large part at least, a massive climb in interest rates across mortgage products and financial markets.
Don’t dwell in the past
The peaks and troughs of rates can be a tough pill to swallow for an industry that always wants to deliver the very best for customers, but here we are.
The current state of the rates throughout the mortgage market, but especially within the equity release trade, is making things difficult, and we all have to accept that – for now, at least. There’s nothing that you or I can do to immediately bring them down again as much as we would like, but acceptance that they are vitally important is key for us all to help our customers get what they deserve.
Ultimately, customers will always be interested in things like flexibility and product variety, but when it comes down to it the overall cost will remain a paramount concern. So, when rates spike as they have, what are we to do? Should we wallow in self pity and harken back to the days of yore?
Not for me. Let’s face forward and face this challenge head on.
We have come so far
First off, modern equity release products are a totally different animal to those available just a few years back. With the help of the Equity Release Council’s most recent customer safeguard, all new equity release customers have the baked in right to fight back against rising interest rates by making penalty-free repayments on their loans.
This vital update to the lifetime mortgage gives customers a ton of extra flexibility and the fact that it was launched in March last year, just before the calamity of Q4, was an incredibly fortunate and significant event for our industry. Continuing to push for this sort of flexibility and customer protection will help us negate the impact of any future rate rises.
Secondly, today’s lifetime mortgages don’t necessarily have to be a lifetime commitment. Many products across the lifetime mortgage suite have early repayment charges that end after as little as eight years. This means that with repayments and careful managing of the loan balance, customers can look at remortgaging options in a shorter window than before. And hopefully this can be timed with an interest rate decline.
However, what about those customers who do not want to or, more critically, cannot afford to make regular repayments? Well, this is where the flexibility of modern equity release comes into its own. Yes, all new customers have the right to make repayments penalty-free, but this is not mandated.
Lifetime mortgages are unique in their ability to offer the cash injection many people need – and right now may vitally need – while demanding no immediate repayment. Of course, in a higher interest rate environment this will impact customers more via compound interest in the long run, but this is where expert advice comes in.
Some customers will need to be advised that repayments are key, while others may well like the option of never having to repay, especially if things like leaving an inheritance are not important to them. This choice is a possible answer to battling the rate rise.
Pass on all our knowledge
Essentially, our job as advisers and experts in the industry is to provide our clients with the help and guidance they need. Interest rates will always be a topic of discussion, and often it will be a primary focus, but it needs to be a part of a holistic approach to the advice process.
Sometimes, we need to advise clients that a product just isn’t for them and the rate can play a big part in this, but that is not to say that higher interest rates have to mean less market activity. The country, and indeed much of the world, is struggling right now and borrowing will be an essential lifeline for millions of people. We just need to make sure we can pass on all the knowledge they need.
