He said this year had been challenging not only for the later life lending market, but for the mainstream mortgage sector and financial services as a whole.
“It’s probably been particularly challenging because it was on the back of what was a record-breaking year in 2022,” he added.
Hale said the speed of the market downturn “came as a bit of a surprise for everyone” across the entire financial services sector but said Key was an “agile business” that adapted to the new market reality.
“It’s right, that businesses have taken considered approaches as well. And that’s what we tried to do.”
Hale said the mini Budget caused a “material change” but now the sector was “stepping up” to help people meet their needs. Hale said borrowers were choosing equity release for needs-based reasons rather than aspirational purposes, which meant people were looking to supplement their income, help family members and pay off their mortgages.
He added: “We’re still dealing with a rapidly aging population, so there’s more customers coming into our customer profiles all the time. We are still dealing with a situation where older people have woefully under-saved into pensions and other assets.
“Therefore, the house is probably the biggest asset that they have.”
Hale said as people would be living in retirement for longer, they would also need to consider how to support their lifestyles, adding that the foundations to see growth in the later life market over the next five to 10 years were still in place.
As a business Key had positioned itself to be sensible and prudent, while still investing and building on the foundations to support borrower needs, Hale added.
He said the market was set for a longer period of higher interest rates and did not expect there to be any significant changes soon. However, he said this did not mean there would not be “modest growth” in the meantime.
“There are a lot of customers who have been sitting on their hands because they perhaps feel that we’re in a period where rates are artificially high.. But the longer rates remain at this level, customers will become more confident that this is the new normal, so they’ll get on with their lives and make those financial decisions.
“I do think we’ll see some of that sort of pent-up demand come into the market next year.”
He added: “Overall, I think it’s probably not going to be until, you know, 2025 that we see sort of the trends turning the other way.”
The LTV barrier
Hale said compared to the residential mortgage market, equity release rates were “pretty competitive” and were not a barrier for most borrowers, but could be for people with less equity as they could be as higher as eight per cent.
Furthermore, loan to value (LTV) limits have been reduced in recent months which means there are some clients the firm has been “unable to serve”.
Hale said there needed to be innovation in product development to address these challenges.
He said the “mysterious hybrid products” which had been discussed recently could help by allowing people to commit to repayments for a set period, before having the product revert to a roll up option with flexible repayment options after that.
Hale said this would allow lenders to “offer products with slightly higher LTV, but also allow customers to benefit from rate reductions if they’re prepared to make higher mandatory payments”.
He continued: “I think it’s those sorts of products that are likely to come to the fore in the next sort of six to 12 months. And we’re aware that there are a number of lenders who are looking carefully at opportunities in that space. I expect there’s going to be exciting news coming in the next few months around those options.”
Restrategising
Hale said Key wanted to make sure that while it resized the business for the new market the firm did not step back from the investments it was making for the long term.
Hale added: “It’s been very hard. It’s been a really tough market for people to adapt to. We’re lucky that the size and scale of the business means we have the resources and ability to navigate our way through the sort of turbulent periods.”
He said Consumer Duty prompted the firm to reflect on its advice, processes and philosophy “to make sure we’re set up to deliver the right outcomes for the changing and growing profile and customers coming through”.
Key recently announced that it had reviewed and updated its advice process, as well as launched an affordability tool, to place a greater emphasis on personalisation for clients.
This includes signposting clients to suitable products, encouraging them to explore options outside of borrowing and referring them to other financial advisers.
Hale said this was a “formalisation” of the principle that Key had in place for years.
Key has also identified “really exciting opportunities in the world of AI”, Hale said. He said the firm had been looking at how to use the technology to monitor the quality of its activities.
Hale added: “We’re currently moving to a new CRM system that opens up lots of new opportunities around how we can tailor customer journeys and drive more efficiencies for our people.”
“That continued investment in technology and trying to streamline processes for both the customers and advisers is a real area of focus for us.”
