‘To say lifetime mortgages are expensive is nonsense in 2020’ – Star Letter 06/03/2020

‘To say lifetime mortgages are expensive is nonsense in 2020’ – Star Letter 06/03/2020

This week, Simon Little, managing director of Autumn Life Retirement Solution, added an insightful and thought-provoking response to Equity release is heading into the eye of a ‘perfect storm’ – Blackwell.

 

He wrote: “I have to admit I’m struggling with this article from Linda. I’m not sure what the point of the article is other than to saber rattle that equity release is likely to be the next big mis-selling scandal, which I don’t believe it will be.

“To say lifetime mortgages are expensive is nonsense in 2020.

“I’ve just looked at some products currently available with interest rates fixed for life at 2.65 per cent.

“At these rates it takes 27 years to double the size of the original loan.

“Assuming zero house price inflation it is highly unlikely that the loan will erode all of the equity particularly given the low LTV to start with for borrowers aged 55. These products look exceptionally good value to me, with the possible exception of the complex and potentially expensive early repayment charges.

“The Financial Conduct Authority (FCA) has recently announced it is to investigate the later life lending market to ensure it is working as it should be and in the best interests of the customer. This should be welcomed and I hope the regulator cracks on with this asap.

“So here is the nub of the issue, isolating lifetime mortgages and badging it as the sole solution solution for releasing equity fails to recognise the shifting dynamics at play across the later life lending market. I.e. it excludes resi-mortgage options which I believe account for in excess of £25bn of sales to the over 55’s, making the total later life lending market of >£30bn of which lifetime mortgages account for just 13 per cent of sales for 2019.

“If one of Linda’s points is the industry needs more advisers providing advice across the later life lending space than I agree. One initiative that could accelerate this growth would be for the regulator to look at merging the MCOB rules for lifetime mortgages and residential mortgages where advice is provided on a borrowers’ ability to repay or not as the case may be.

“As for using housing equity to resolve someone’s future long term care needs, then I would suggest this is limited as current rules apply and I’m not sure this is in the interest of many who wish to pass on housing wealth to the next generation.

“In short I don’t believe lifetime mortgages will be a mis-selling scandal and perhaps as an industry we should be championing the huge benefits such products afford clients to live a full and enjoyable later life.”