The Horizon Interest Reward offers a rate discount for customers who commit to making monthly interest repayments for a specified term, fitting into the emerging hybrid mortgage category that breaches the gap between residential mortgages and later life lending.
The deal was widened with a new interest option and facility for customers to secure larger rate discounts earlier this month.
Speaking to this publication, Standard Life Home Finance’s sales director Kay Westgarth (pictured) said that the figures came off the back of a “really successful Q1”.
“I think the reason behind it is probably twofold. If you look at the traditional equity release customers who’ve got an appetite to meet contractual payments, they are worried about compound interest rolling up. They want to make more than just your standard optional voluntary repayment.
“Our [hybrid] product allows them to make a further payment, but to receive a lower interest rate by way of a reward, hence the reason for doing that.”
She added that the second customer that would be looking at this deal was your “typical residential mortgage customer” who was looking for a vehicle to exit their interest-only mortgage where perhaps they can’t afford to repay the full repayment, or they can afford to repay and they don’t want to, as they want to enjoy their retirement.
Westgarth said that this product was different to other “hybrid” products, as there is a risk that you could lose your home, but that was not the case with the Horizon product.
“If the customer changes their mind, it gives them the flexibility to pay for a specific period, not the full lifetime of the product, and in the worst-case scenario, if they can’t maintain that payment, they just go back to their original interest rate.
“We want customers to have better choices, suitable to their needs, but that give them that flexibility as they go into retirement,” she said.
Westgarth said that this hybrid space will be an area that lenders will “have to” look at and expand into.
“Looking at the regulatory change that came in last year, I think what will happen is we’ll come away from those silos of ‘this is equity release, this is retirement interest-only [RIO], this payment term lifetime mortgage’.
“I think they’ll have to embrace that more holistic viewing, and the reason for that is one of the things that regulation highlighted last year was a greater emphasis on affordability-led suitability, so really on managing the total cost of that borrowing, compound interest versus servicing interest. I think that is the path that we all need to go on, because it’s the right thing for the customer, is the main reason, but also because it’s the right thing for the regulator,” she explained.
Lenders will have to enter ‘hybrid’ space
Westgarth said that 2023 was a “really challenging year for the mortgage market in general, not just in later life”.
She said that all lenders were impacted by the heightened cost of living and high inflation rates, but this was especially the case in the later life market.
“We saw the much more traditional equity release specialists having to diversify, so they had to look at other areas of business and they had to make the operation leaner, but still write as much business.
“It was a challenge, and also how we could help them with that change, so whether that was education, technology or general support that we could give,” Westgarth said.
She noted that the regulator changes last year led to a “full re-examination of how financial advice and lending products were offered” and that was not limited to the 55-plus market, but to the over-50s.
Westgarth said that the regulatory changes has emphasised the need for “product evolution” and for lenders to “develop products and tools that will help advisers engage with how this market changes, but ultimately to offer better solutions to their customers”.
“As we go into this year, I think we’re fully embracing the change between mainstream mortgage lending and later life lending, so there’s much more synergy between the two. That could be from sales, marketing, products, new products, who our target market is, and just really looking at a better-outcome customer.”
‘Key focus’ will be affordability
Westgarth said that the challenge for this year would be “getting their head around this key focus on affordability”.
“There is a greater emphasis on the total cost of borrowing and no longer just looking at headline rates. Making sure the customer has that real sound understanding of the product that you’re recommending, whereas before that would sit with the adviser, but you’ve really got to prove now with these regulatory changes that the customer is fully aware of what you’re recommending and why,” she said.
Westgarth said that, while it is a challenge to bring those advisers and brokers on board with a new approach, there was a “plethora of support”, whether that was from field-based business development managers (BDMs), webinars, masterclasses or other online support.
She said that it wasn’t just new products, like hybrid products, where education was key, but existing products as well.
“I think it’s worth remembering that in 2022 there were a lot of products that were removed and a lot of criteria changes due to the mini Budget, and now they’ve ended up coming back, but I think we expect them to know it all.
“It might be a product that was never used before… so it’s great to see those sorts of products come back. Things like medically enhanced questions were taken away a couple of years ago; they’ve started to make an appearance again for some other lenders,” Westgarth said.
She noted that the market was not back to pre-mini Budget levels, but that advisers were more comfortable with the current interest rates being the “new norm”.
“That took them a long time, when you had market rates back in 2022 that were sub-3% and you’re now looking at 6% being the market average, that’s certainly a difficult thing for advisers to get around enough, also to then recommend that to their customers.
“I think we’ve got there with that, but I think we’re probably looking at the latter part of 2025 before we see the full recovery of this market,” Westgarth added.
When asked what she would want brokers to know about Standard Life Home Finance, it would be “communication is a two-way street”.
“We developed a new product with customers and brokers in mind. We are always willing to listen, because it’s all well and good a lender coming out with a new product, but if it doesn’t fit a customer’s needs then it’s pointless. So, for us, it’s very much we need as much feedback as they can give us to the market so that we can progress the market to serve customers,” Westgarth concluded.
