The last 12 months for the later life lending market has been rather like that period of life in general – occasionally upbeat but often uncertain and with a number of aches and pains along the way. The first half of last year was the quietest H1 since 2016, according to the Equity Release Council (ERC) Autumn Market Report, while a Financial Conduct Authority (FCA) report in September noted ‘poor’ advice from some firms in the industry.
However, as the year progressed, there were signs of recovery. For example, in November, Mortgage Solutions reported that lifetime mortgage rates had started to fall while product choice had breached the 300 mark for the first time since 2022
With so much volatility in the sector, Mortgage Solutions sat down with three later life experts – Jim Boyd (JB), CEO of the ERC; Jon Dunckley (JD), author of the ERC-commissioned Great Expectations; and Tom McPhail (TM) of the lang cat, who published the independent House Rules report – for an in-depth discussion on where the sector currently stands, the challenges it faces and why younger generations are likely to embrace later life lending.
Where are we in the later life lending market?
JD: Like the wider mortgage market, we’re in difficult times. People are currently facing a lot of uncertainty. When people are uncertain, that leads to anxiety. The fundamentals may have changed but the need and opportunity are still there.
TM: There’s a short-term picture and there’s a longer-term picture. There are challenges in the short term, prompted by the rapid rise in interest rates, although these are now falling. But I think it’s worth also just nodding towards the longer-term state of the market and all the work that Jim Boyd and the Equity Release Council (ERC) have done in setting standards and improving conduct and generally making the later life lending equity release sector fit for purpose.
There’s a lot of good work that’s gone on there, but I don’t think this has necessarily been fully reflected in market, consumer or regulatory perceptions as yet.
JB: Equity release is a long-term product. And the drivers underpinning this market mean that it can only go one way, because we are living in a country which is getting older. Now, that means everything’s going to change. And if you add to that, the consumer need, a greater recognition of the safeguards which are out there, then you’ve got the drivers for a vibrant market. However, it is a market which requires innovation to reflect those changing needs.
In terms of market perception, do you still think there is a stigma around later life lending? And how can that be overcome?
TM: There is a consumer and industry misperception of where the market is at. There’s a challenge for everyone involved in later life lending to work with people within the industry, never mind the consumers. However, there is a demonstrable consumer need because the sector is fit for purpose.
JD: I think whether there’s a stigma at the moment, largely depends on who you speak to. If you speak to those people who have engaged with the later life sector, I don’t think you’ll see that, because they’re aware of how the market has developed. It seems very strange that you can have people that will be living with real, genuine financial challenges, whilst being sat on a massive store of wealth, and not being willing to consider that.
With that stigma in mind, we need to challenge some of those erroneous beliefs. And this needs to be led effectively from the top. We need a more joined-up approach about the role that property can play in later life finance, this needs to be looked at from a governmental perspective, first of all.
That, in turn, will lead to a more joined-up approach between regulation, product provision advice, and then ultimately, on to spreading that message more widely to consumers.
JB: The most basic stigma concerns people in later life and the way they look at their property wealth. If you spend your entire life paying off a mortgage, then it seems to be an aspect of failure to incur debt later on. But attitudes to death and property are changing. Younger generations, instead of looking at mortgages as a millstone, will actually see property as a critical part of their retirement planning.
But we need to demonstrate what protections and safeguards are out there. And there needs to be discussion about increased market innovation, the benefits of real quality advice, and how this can help consumers navigate their later life needs in the short and the medium term. Consumer Duty will also be hugely important for engaging consumers.
TM: I think political engagement is vital. It doesn’t feel like the political parties have given a lot of thought to this. They don’t have coherent policies around this. By contrast, we’re hearing a lot of narrative coming out, right across the political spectrum, on the way pension fund investment is stimulating economic growth, and you don’t hear the equivalent narrative coming out of political parties around property, despite the fact they are broadly equivalent in terms of value.
What are the main benefits of later life lending? For example, how can the sector help with issues such as the green agenda, the changing pensions’ climate and social care?
JB: In terms of the green agenda, we have governments which have net zero carbon targets. We’ve got the oldest housing stock in Europe, and it’s responsible for 20 per cent of carbon emissions.
And we’ve got lots of people in later life, living in houses, who want to make it cheaper to heat their homes and live independently in those houses, so we need to make those two agendas work together.
As a tangible example, we’re currently working with the Scottish Government. We’re engaging in discussions about a proposal to develop a potential green equity release product, to address the needs of these people and to address net zero.
So we’re trying to work out how can we help them do that. And obviously, there are certain issues that one has to address from this. For example, what are the right interventions that people have to put into a house to make it compliant with those objectives? Is it heat sourcing? Is it insulation? Is it different boilers?
It’s a complex issue but we’re part of that discussion. And it’s hugely constructive, because ultimately we’re all looking for things which benefit the consumer, and actually make the houses more valuable in long term as well, while at the same time, helping governments address these major net zero issues.
And if you’re talking across generations, this can be massive from an inheritance perspective. People in later life can actually make significant contributions to future generations by getting this right.
TM: It’s been really interesting watching the political narrative around greening the economy and the energy transition plans. Part of that discussion, as mentioned, is what we are going to do with our existing housing stock.
One of the key issues is how you persuade individuals, particularly working families, to spend money they perhaps don’t really have to insulate and upgrade their properties when they’ve got other priorities.
An easy win for a government is to look to those individuals who have perhaps retired who have wealth built up in their property, who can lead the charge on some of this work. And speaks precisely to the equity release sector. This is really pushing on an open door politically.
Meanwhile, there is also an annual retirement income shortfall of around £48bn a year between what the current UK population needs to live comfortably in retirement, and what their pensions are. And equity release provides a solution at topping up people’s retirement income, whether it’s in lump sum withdrawals or regular income.
And that has a massive role to play, especially with the steady decline that we’re going to see over the next 20 years in defined benefit pension payouts. I think there’s a real challenge for the next couple of cohorts coming into retirement who are going to find themselves a bit shorter in terms of cash in retirement. A lot of people in their fifties and sixties are going to need to use [the wealth in their homes]. I think there’s still some interesting challenges on people shifting perceptions around the idea of drawing down on their housing wealth for retirement.
JD: We also need to look at the care situation in this country. Social care is in trouble. We’re in a situation where we’ve got almost as much money in property as we have in pension funds, for us to not consider how that money could help to play a role with those social challenges will be incredibly remiss of us.
What are the expectations for the future of the sector? Will later life market finally enter the mainstream?
JD: I still have great expectations for the sector. The challenges are real but there is a need. We’ve outlined some of the challenges, but those challenges are surmountable.
We’ve got some particular short-term situations that we’re resolving at the moment. But the long term remains very much a positive picture with the solutions to the problems.
TM: We need to take a step back and look at social attitudes. They take a period of time to evolve. As an example, look at the normalisation of school leavers going on to university; rewind 20 years, it was a very different picture. Now it’s relatively commonplace. Similar to the shift in pension participation. And these are just two examples.
I think the next shift that is already happening is the shift from the assumption that you own your housing wealth and get to keep it to regarding that store of wealth as something that you can draw on in later life. And because of trends around social care provision, I think that is a shift that is happening now.
JB: I believe the only way the sector is going to achieve its full potential in the long run is if we ensure it’s consumer focused. In terms of standards and protections, I’d argue that the ERC is a bellwether for that. When I joined five years ago, we had 219 corporate members, we’ve now got over 750, with some of the biggest international names. It’s a sign of that mainstream nature.
If we ensure the market is aligned to the consumer need, we will have the underpinnings for stable growth, coherence, and an incredibly healthy later life market. However, we have to ensure that, the market is driven in the way that we believe that the consumers best benefit from it. And, of course, the Consumer Duty is the next chapter of that evolution.
