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Later life lending ‘future is bright’ and demand will return, lender exec says

  • 23/11/2023
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Later life lending ‘future is bright’ and demand will return, lender exec says
Demand for later life lending will return to more normalised levels once economic conditions have stabilised, but a focus on good customer outcomes is paramount, a senior executive of a lender has said.

Speaking at the Equity Release Adviser Conference, Angela Robertson (pictured left), head of retirement distribution for Aviva, said the “market that we see today remains a challenge given where rates are”.

She continued: “Advice firms have had to respond over the last year or so in connection to the reduction in the customer numbers which we’re seeing at the moment, and we appreciate that that was unexpected, and difficult for many as well.”

Robertson said she expected demand “will return”, noting there was “pent-up demand” from customers, which was the feedback she was getting from customers.

However, she said the market would return when economic conditions stabilised.

“When it [demand] does [return], we really need to be ready to respond to that and provide more holistic advice going forward. I think it’s really important that we continue to work on standards… but I think that we recognised through Consumer Duty now that there’s more for us to do,” Robertson added.

She continued that in the last year it had been “vital to have a robust business model in place that offers a range of solutions to customers that links to good customer outcomes for your personalisation”.

“Longer term, I think the future is bright for the sector. I think it’s important that we take steps to ensure the best possible outcomes for customers, so evidence and good quality advice, products and services,” Robertson added.

She said: “You interact with customers on a daily basis, you’re considering the customer’s needs and are aware of the range of solutions that are good in the marketplace to help solve the challenges. You see where providers… meet those needs and even more importantly really don’t.

“We’re constantly looking for partners in the audience here today to work with us to move forward to evolve how we best serve those customers, and your insight has been critical to us over the last 25 years in terms of where we’ve ended up.”


‘Fairly valued house prices are a good thing for the equity release industry’

Hansen Lu, senior economist at Aviva, said the key factors for the equity release market was house prices, interest rates and inflation.

Lu continued that over the last 12 to 18 months house prices had been falling, with the contraction equal to around four per cent following strong growth during the pandemic.

He noted that looking ahead, the expectation was another four per cent fall next year but this was dependent on the trajectory of inflation and interest rates.

“Fairly valued house prices are a good thing for the equity release industry and they’re a good thing more broadly as well. For the equity release industry having house prices that are fairly valued lowers the amount of risk for the lender, and also more broadly having house prices are fairly valued means people can find the home that they want,” Lu explained.

Lu said the current economic period of high inflation and ratcheting interest rates was “abnormal”, but the pace of decline was quite gradual.

“It seems that the financial markets and economists think the pace of decline is quite slow. So potentially 25 to 50 basis points initially will be at the end of next year, and then quite slowly afterwards as well,” he added.

This places the interest rate at around 4.75 per cent at the end of next year, and then the terminal rate estimates range from 2.5 per cent to four per cent.

“The big picture really is a gradual decline from high rates to a level that’s lower than what we have seen historically but higher than the 0.5 per cent that we’ve got used to in previous decades,” he explained.

He noted that long-term gilt rates that were crucial in equity release market and these had been “very volatile” and built on expectations of interest rates.

“The timing of that shift in expectations that will drive long term yields that’s very difficult to know, because that’s really about data coming out and it’s both a mindset shift in financial markets mindset shift and what people think,” Lu added.

He said it was unlikely that the market would go back to the “ultra-low rates” seen between 2019 and 2020 but that a “normalisation” in economic conditions was “probably coming”.

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