Early reaction from some quarters has described these latest figures as ‘worrying’, although my view is that they have to be reviewed within a much wider economic context, not least the environment that older borrowers – and indeed all consumers – have been facing in the last 12-18 months.
But, are the figures ‘worrying’? Should all of us sector stakeholders be ‘worried’?
Putting it into context
It may well depend on how you see the later life lending market. Do you see it purely as ‘lifetime mortgages’, which these UK Finance figures refer to? Or do you see it in the context of a much wider marketplace?
If it’s just the former, then you may well be ‘worried’ by the drop in lending between 2022 and 2023, however I might also suggest that you have probably not been in and around the market for very long.
Anyone who has spent multiple years active in equity release, for instance, will know full well that there were many, many years when the sector could only dream of £4.1bn of lifetime mortgage lending in a calendar year – the figure for 2023, according to UK Finance.
They will remember years when £1bn of lending looked like the very height of ambition for the sector during 12 months of activity, let alone an average of this over a quarter.
And yes, of course, we’re acutely aware that the lifetime mortgage business saw a fairly substantial drop-off between 2022 and 2023. However, name me any specific mortgage sector that didn’t see a similar fall in activity, be that buy-to-let (BTL) or other types of specialist lending, not forgetting residential purchase and remortgaging.
An unsurprising contraction
When you have a significant increase in rates over the course of any period, it is inevitable you will have a tail-off in both demand and activity.
The increased cost of that lending will weigh heavily on a large number of potential borrowers, and they may not be in a position to either afford the loan, or they might simply decide now is not the time to be doing this.
The point we should all be focused on, of course, is whether the 2023 environment is likely to prevail, and will last year be the norm for years to come? I think we are already seeing signs that this is not going to be the case, particularly if inflation continues to track downwards, if it moves towards, and eventually reaches, the Bank of England’s two per cent target, and if rates can be moved further southwards as a result.
We’ve seen already this year how lower rates have shifted the market, and later life lending is really no different to the wider mainstream space. Not least because it’s much more of a mainstream offering anyway, with many older borrowers taking out mainstream mortgages, plus of course you have retirement interest-only (RIO) options, plus all those available within the lifetime mortgage sector.
Led by rates
Rates clearly have an impact – that is a fact we can’t deny – and 2023 felt that more keenly than in the years prior to that when we were fortunate to have ultra-low rates. They, of course, impact loan-to-value (LTV) levels as well – a major consideration for later life lending – and this clearly adds up to the levels of business and lending we saw last year.
However, as we all-too-readily know, the market can shift (and to some extent, has).
It’s not a linear shift – it never really is – and we will see pricing move up and down, reflecting a whole host of concerns and issues at any one time. However, it’s likely that we will see bank base rate cuts this year, and we already have swaps responding to this greater likelihood, which does mean that average rates have tracked down from the norm last year.
These are still very early days in 2024, but we should not be worried by the figures as recently revealed. The underlying fundamentals of the later life lending market are strong, as are the greater array of options available to advisers and their later life borrowers.
The important point is to be active in this space, ensure clients are aware of your advice offering, and ensure you are able to cover off all of the growing number of options that are available to you and them.
No worries.
