However, the pressure on brokers to have a whole-market understanding of suitable mortgage products for people aged 50-90-plus is immense. Consumer Duty has put paid to the notion of equity release being the sole option for later life lending.
While equity release might be perfect for some homeowners, there are other, very welcome options on the table now.
Putting the client first
Over the past few years, innovative specialists in later life lending have opened the market to a wider and deeper range of Consumer Duty-compliant products suitable for older age groups. These include standard capital and interest mortgages, interest-only mortgages, retirement interest-only (RIO) mortgages and, of course, lifetime mortgages – or equity release, as they are commonly known.
Following the July 2023 Consumer Duty obligations for better outcomes for retail consumers, the Financial Conduct Authority (FCA) published the Later Life Lending Review in September 2023. It found that the advice provided to many older borrowers did not meet the standards expected due to firms insufficiently evidencing the consumer’s individual circumstances, and the advice lacked discussion around alternatives to equity release mortgages.
Instead of lenders and brokers trying to fit customers into their products, we need to focus more on customer requirements, and select the most fitting product for the customer. It might at first appear intimidating, but Consumer Duty is an opportunity for brokers to offer more holistic advice for excellent customer outcomes – with a little help from lenders and technology.
Confusing quagmire of affordability
For brokers who are either new to the industry or who are experienced purely in equity release, as I was until recently, it can be easy to get dragged into the confusing quagmire surrounding product options and the major issue of affordability that comes hand in hand with questions of age and retirement.
Now, more than ever, it is essential that brokers conduct an affordability assessment. This raises the question of what types of income and property a later life lender might consider, and whether adverse credit might stand in the way.
Types of income that later life lenders might welcome
This may not be as prohibitive as you might think. Some lenders consider factors, such as whether the homeowner is salaried well into retirement and later years, self-employed, or receives rental or lodger income.
Pensions, future pensions and spousal pensions transfers might all be welcome, as well as cash savings or investments.
Property types that later life lenders often consider
Lenders might also welcome a wide range of property types, such as being close to or above a commercial property, built of non-standard construction such as timber or steel frame, properties with close proximity to pylons or rail lines, or properties in a flood-risk area.
Adverse credit not necessarily a barrier
Some later life lenders may also accept adverse credit including missed payments caused by life events, debt management if arranged and maintained to a satisfactory level, unsecured missed payments, credit utilisation, mortgage arrears, county court judgments (CCJs) and defaults.
Affordability calculator and counter-offer
Since 2023, brokers have had access to a simple but clever product matching engine and counter-offer capability. It sifts through a whole range of 200-plus later life mortgage products, so brokers don’t have to.
Based on criteria that the broker keys into the affordability calculator, the matching engine provides a full view of all later life options suitable for the client. If they fail to meet affordability requirements on the mortgage they originally wanted, the matching engine will counter-offer with a list of alternatives from across the range.
This takes away the hassle of manual searching and collating product data, while also providing a fully compliant record. More often than not, an intermediary will start the process with one product in mind and come away with a completely different product that not only is more suitable for their client, but may offer them a higher-value loan.
With our ageing demographic and £200bn in interest-only mortgages expiring over the next 10 years, the later life market is a great opportunity. It doesn’t have to be complicated.
