Looking at innovation in the market, I can think of products that utilise the Bank of Mum & Dad for first-timers, or guarantor mortgages, or Skipton’s recent 100% LTV product which takes rental payments into account. Then there are those that offer the ability to buy with friends, or something as fundamental as buy-to-let mortgages which completely changed our market.
When discussing innovation however I am reminded of what Bob Young, former CEO of Fleet Mortgages used to say on this topic which was effectively there hadn’t been any for a long time. And that when people talk about wanting innovation, what they tended to want was actually lower rates, higher LTVs, and more flexibility on criteria.
Later life innovation
In part, I sort of agree, but I also think it’s fair to say that we’ve seen a fair amount of innovation over the last couple of decades, in our own part of the market, later life lending, whether it was current account or offset mortgages.
Can we really say that, for example, retirement interest-only (RIO) isn’t innovative, or what we might deem ‘hybrid products’ don’t fulfil the innovation brief? I don’t think so.
Talking of which, it has been truly inspiring to see later life lending providers pushing that innovation envelope with, most recently, Legal & General Home Finance’s Payment Term Lifetime Mortgage (PTLM) effectively working that hybrid model and coming up with a product for a younger demographic, who want to access their home equity, but can still pay fixed monthly interest payments up until retirement or age 75, whichever comes first.
It feels that products, and others which are inevitably going to follow in its footsteps, can hit a ‘sweet spot’ for those who – up until now – have been too young to access the equity they have built up in their homes.
The product can also fulfil a real need for those interest-only borrowers who may not have a repayment plan in place to pay the capital element when that mortgage comes to an end or may have a shortfall within that repayment plan.
Essentially, we have a client base who are currently between a traditional mortgage and a RIO, and these types of products are now a credible option for those individuals who, as I say, have not yet reached 55 but do have significant equity in their property.
What we are always crying out for in the later life lending space is more product choice, and I can’t help but feel that where L&G Home Finance are leading, other providers/lenders will follow, hopefully adding even more options.
This is particularly pertinent for that borrower demographic who are in their late 40s/50s, who may be eyeing their retirement up, but still have income to be able to service interest payments and want to do so, but who at the same time also want to be able to access higher LTV options, that are not available in the lifetime mortgage/RIO product space.
These borrowers now have an option which is a true combination of traditional/lifetime mortgage, with an element of RIO as well, if the client is seeking to pay off the capital on their interest-only product or they have a shortfall in their existing repayment plan.
It means they can get that lump sum earlier in their lives if required, they can – in the case of the L&G Home Finance product – access an LTV up to 55.3%, which is much higher than for other later life lending products, and they can of course continue to service the interest in full until a point in time.
Now, the criteria obstacles are a little higher here – they will need to meet affordability measures, but it’s likely they will have stable earnings and will be assessed on those now, even if their income does come down when they move into retirement.
One size doesn’t fit all
As mentioned, it feels innovative because it is, and it shows there are options available to lenders and providers and, certainly within the later life lending space, we have a community willing to explore this, to recognise that one size doesn’t fit all and is therefore willing to go there in order to help different types of borrowers. That will certainly be appreciated by later life advisers, borrowers and all of us active in this sector.