Speaking at the Later Life Lending Event (LLLE), Paul Glynn (pictured), Air CEO, said that the “shifting pattern in terms of reasons for looking at equity release and reasons for releasing” is creating quite a “complicated picture in terms of the conversation happening between adviser and customer”.
“Loan to values (LTVs) are an issue; we’ve seen some easing at the start of this year, but it’s definitely still a pressure. We’ve seen higher interest rates impacting people’s ability to service interest, adding to that sort of the cost-of-living pressures… leading to a more complex and evolving conversation.”
He said there is “much more consideration now around how much the customer can pay” and “affordability now sits at the heart of that adviser-customer conversation”.
“It opens up a raft of different potential new product options, it certainly makes it very clear the wider product options that will be available to the customer but also the benefits in the high interest rate environment. It has been able to support some of those interest payments in a lifetime mortgage scenario where the interest is rather low,” he said.
Changing customer situations putting more focus on new product design
Glynn continued that the “evolving customer circumstances” had brought “more pressure and focus on bringing new product design to market to solve that problem”.
He said that, at the end of last year and going into this year, there were “more products being released, more product options being released from the traditional space and now more options in terms of LTV”, adding that LTVs available for customers were typically four per cent higher now than they were last year.
“The gap in terms of being able to find customers who can meet those higher interest payments in terms of mainstream mortgages is higher, and the gap in terms of customers who are able to find the LTVs they want in the lifetime mortgage space and then have an appetite for the roll-up interest in that space is wider today.
It is a big chasm with customers where we need product design to support and develop propositions for them.”
He said that the more “comprehensive in-depth challenging conversation with a customer about how much they can afford to pay” would hopefully lead customers down two tracks.
If customers can pay interest-only level or more, then they can follow that route, or if they can pay slightly less, then they can secure a lifetime mortgage with mandatory payments.
“Essentially there, you’ve got agreed contractual payments of interest at a level that is interest-only levels or below, and in exchange for those payments being made, you’ll see some element of offset against interest roll-up, but you’ll probably then see an economic benefit pass through to the customer in one or two forms.
“Either those products will have a lower interest rate or they’ll have a higher LTV, but by asking those comprehensive questions around how much the customer can pay then the full suite of product options will be available for discussion within the advice process,” he explained.
“I think there’s lots of reasons to be cautiously optimistic that if we have those great conversations, that customers who we knew sourced in 2022 and 2023 but couldn’t find a product are now going to, at least if they can make payments, have some more options open to them as we go into 2024 is really encouraging,” he said.
Later life lending seeing shift to needs-based releases
Glynn said that in the last year there had been a “definite shift” to more “needs-based releases” post-fact find, which he attributed to the pressure from the heightened cost of living.
“If you look at the amount of money released for paying off debt, rather than it being the headline 29 per cent in 2023 compared to 28 per cent the year before, when you look at the amount of money that was released to pay both unsecured debt and mortgages – particularly in the interest-only space – 56 per cent of the money released was driven by those two factors,” he noted.
Glynn added that there was a “much more conservative approach to releasing funds for other reasons” in terms of how they’re spending their money and the amount they released, with holidays as an example.
“It was a much more needs-based, much more conservative focus, and the reasons for releasing those funds was more about addressing mobility issues, more about preparing for retirement. It was much more about that needs-focus rather than some of the cosmetic and aspiration reasons,” he noted.
The LLLE will return next year on 23 January 2025 at Hilton London Bankside.
