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Exclusive: Legal and General to launch RIO and encourage mainstream broker interest

  • 25/09/2018
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Exclusive: Legal and General to launch RIO and encourage mainstream broker interest
Legal and General Home Finance is expanding its later-life lending proposition and introducing a range of broker support initiatives to help residential mortgage brokers move into the market.


The lender will be launching a retirement interest-only (RIO) product next year and is aiming to move its lifetime proposition into the mainstream space.

Speaking to Mortgage Solutions, L&G Home Finance head of mortgage broker sales Marie Catch said the lender was making a big push to interact more with brokers.

“We are planning fundamentally to bring the L&G brand into the residential space,” she said.

“We’ll be working to get brokers to think about the whole later-life lending space.

“They have to be aware clients are going through these whole mortgage transitions generally and they have a duty of care to support customers through whatever life experiences come,” she added.


Hand-holding through exams

Catch will spearhead the move which will launch with an engagement programme helping brokers to understand the growing later-life lending sector and even support their exams to advise on equity release.

As part of these demands she will be building a team to help her deliver this strategy, with new hires in the process of being made.

“We’re going to become more proactive and hands on,” she said.

“We’ll be there to hand hold brokers through qualifications, support how they give advice in the market and getting leads to build their business.

“All these difficult actions that will help them to get to grips with the market and make the transition,” she added.


RIO launch

L&G Home Finance managing director Steve Ellis (pictured) said the retirement interest-only product launch would be a key part of this growth ambition.

“We intend to launch a RIO product next year,” he said.

“It fits with our business and fits with what customers need.”

Ellis suggested there will eventually be two or three versions of RIO products available across the market as other lenders enter. “It will be part of the mainstream,” he added.

The lender is also planning to make later-life lending and its proposition more widely recognised and used by residential brokers who may not typically work with older borrowers.

This will include expanding its distribution

At present L&G Home Finance’s later-life products are available through sourcing system Twenty7Tec, but Ellis hinted that adding networks, clubs and other sourcing systems “could be an answer” to its push into the mainstream.


Open-minded regulator

The equity release market has grown significantly over the last three years, with Ellis predicting it could reach £4.5bn this year and that “there is no reason it could not eventually reach 10% of the residential mortgage market”.

However, one of the barriers to the market’s growth is the regulatory landscape which sees brokers permitted to advise when they have completed the dedicated qualification.

Ellis noted the Financial Conduct Authority (FCA) has shown an open-minded approach with its re-categorisation of retirement interest-only and the lender would like to see further work in this area, suggesting there should be some recognition of the lifetime market on the standard advice exam.

“The regulator demonstrated this year that it is prepared to be pro-active and make changes to the regulations that make sense,” Ellis said.

“RIO creates the opportunity to revisit regulation. A lifetime mortgage is a complicated product and the exam in place makes a great deal of sense.

“Signposting in the general exams is a good idea also and to question about how clients would like to use their housing wealth is another,” he added.


Capital requirements

One of the biggest issues to hit the equity release market over the last year has been the Prudential Regulation Authority’s (PRA) latest demands on lenders’ capital requirements.

This has led some lenders to suggest profits may take a hit, but Ellis is satisfied that L&G will not be affected.

“The PRA requirements will have very little impact on us,” he said.

“We have taken a prudent pricing approach and have had some sense about where we thought regulator might go – so it certainly doesn’t change our ambition or approach to the market.”

And as for the rest of the market, Ellis admitted there may be concerns for some lenders, but this should not dent the market as a whole.

“If lenders have large back books of business it could have a significant impact on them, but we have only been in business for a couple of years,” he said.

“There is still a real customer need for these products in a market that has been under served and is on the verge of a breakthrough.

“Even if has impact on some lenders, in this market there’s no doubt it will remain competitive,” he added.


No negative equity guarantees

Related to this was the publication of a paper from the Adam Smith Institute earlier this summer which claimed lenders were under-valuing the risks on no negative equity guarantees (NEEGs).

The fears have been largely down played by the market and regulators, with many of the assumptions made in the paper focusing on the most severe worst-case scenarios.

However, Ellis was disappointed at the paper and authors.

“I get a bit cross when these things happen as we have got a great product now and yet we have still this stuff chipping away at consumers’ trust,” he said.

“We work really hard with regulators to ensure that our pricing approach in respect of NEEGs has no more impact than has been considered already.

“And around the industry there are a lot of experienced actuaries in marquee companies that spend a lot of time thinking about these risks. So I do feel very comfortable with the situation,” he added.




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