Bernie Hickman, managing director, Legal and General individual retirement, said the provider was keen to explore product opportunities for older borrowers who are struggling to secure a mortgage due to stricter affordability restrictions imposed by high street lenders.
Legal and General purchased lifetime mortgage provider New Life earlier this year for £5m. This month L&G doubled its target for lifetime mortgage business, saying it planned to write £200m of new business in 2015.
Hickman said: “The area that we’ll be looking to address in the future is the increasing profile of people approaching retirement who are struggling to access mortgage finance. That’s some way off, it’s next year at the earliest, but it’s an area that we’re interested in exploring further. These would be more like a hybrid mortgage product, sitting somewhere between standard residential mortgages and lifetime mortgages.”
Hybrid mortgage products give older homeowners the ability to borrow into the retirement, but offer the flexibility that many equity release products do not by allowing borrowers to make monthly repayments that suit them, rather than the monthly interest being rolled up and added to the loan amount.
“There’s a number of different ways that the products could work but one approach to it is having an amount of contribution that you have to make, thereby allowing us to increase the loan to value that we offer to customers. So for example, if they commit to paying the interest for a period of time then we can offer a higher loan-to-value ratio and then potentially they can use that as a way of paying off an interest-only residential mortgage,” Hickman added.
Dean Mirfin, technical director, Key Retirement, said there has been an increasing demand from advisers for more lenders to look at hybrid mortgages for older customers.
“The frustration for a lot of people we see is that they have a good income but no one will lend to them. So that’s where that innovation really needs to come, to enable people who can comfortably afford to lend the opportunity but with additional options going forward to reflect any changes in circumstance,” he said.
“There is a new group coming into the market who need different types of products. It’s good that L&G, among others, are acknowledging that.”
Mark Gregory, director of Equity Release Supermarket also welcomed the move from Legal and General.
“While product development is increasing in the equity release sector any further moves to offer a wider range of products/choice and potentially higher loan to values will quickly grow this underserved sector of the UK mortgage market further,” he said.