There is no need to lose faith in later life lending – Wilson

There is no need to lose faith in later life lending – Wilson

Early reaction from some quarters has described these latest figures as ‘worrying’, although my view is that they have to be reviewed within a much wider economic context, not least the environment that older borrowers – and indeed all consumers – have been facing in the last 12-18 months.

But, are the figures ‘worrying’? Should all of us sector stakeholders be ‘worried’?

 

Putting it into context 

It may well depend on how you see the later life lending market. Do you see it purely as ‘lifetime mortgages’, which these UK Finance figures refer to? Or do you see it in the context of a much wider marketplace? 

If it’s just the former, then you may well be ‘worried’ by the drop in lending between 2022 and 2023, however I might also suggest that you have probably not been in and around the market for very long. 

Anyone who has spent multiple years active in equity release, for instance, will know full well that there were many, many years when the sector could only dream of £4.1bn of lifetime mortgage lending in a calendar year – the figure for 2023, according to UK Finance. 

They will remember years when £1bn of lending looked like the very height of ambition for the sector during 12 months of activity, let alone an average of this over a quarter. 

And yes, of course, we’re acutely aware that the lifetime mortgage business saw a fairly substantial drop-off between 2022 and 2023. However, name me any specific mortgage sector that didn’t see a similar fall in activity, be that buy-to-let (BTL) or other types of specialist lending, not forgetting residential purchase and remortgaging. 

 

An unsurprising contraction 

When you have a significant increase in rates over the course of any period, it is inevitable you will have a tail-off in both demand and activity.

The increased cost of that lending will weigh heavily on a large number of potential borrowers, and they may not be in a position to either afford the loan, or they might simply decide now is not the time to be doing this. 

The point we should all be focused on, of course, is whether the 2023 environment is likely to prevail, and will last year be the norm for years to come? I think we are already seeing signs that this is not going to be the case, particularly if inflation continues to track downwards, if it moves towards, and eventually reaches, the Bank of England’s two per cent target, and if rates can be moved further southwards as a result. 

We’ve seen already this year how lower rates have shifted the market, and later life lending is really no different to the wider mainstream space. Not least because it’s much more of a mainstream offering anyway, with many older borrowers taking out mainstream mortgages, plus of course you have retirement interest-only (RIO) options, plus all those available within the lifetime mortgage sector. 

 

Led by rates 

Rates clearly have an impact – that is a fact we can’t deny – and 2023 felt that more keenly than in the years prior to that when we were fortunate to have ultra-low rates. They, of course, impact loan-to-value (LTV) levels as well – a major consideration for later life lending – and this clearly adds up to the levels of business and lending we saw last year. 

However, as we all-too-readily know, the market can shift (and to some extent, has).

It’s not a linear shift – it never really is – and we will see pricing move up and down, reflecting a whole host of concerns and issues at any one time. However, it’s likely that we will see bank base rate cuts this year, and we already have swaps responding to this greater likelihood, which does mean that average rates have tracked down from the norm last year. 

These are still very early days in 2024, but we should not be worried by the figures as recently revealed. The underlying fundamentals of the later life lending market are strong, as are the greater array of options available to advisers and their later life borrowers.

The important point is to be active in this space, ensure clients are aware of your advice offering, and ensure you are able to cover off all of the growing number of options that are available to you and them.

No worries.

Moneysupermarket agrees exclusive referrals with Equity Release Group

Moneysupermarket agrees exclusive referrals with Equity Release Group

Moneysupermarket will integrate ERG’s SmartER product comparison technology into its platform so people can research products before seeking advice. 

 

Change the equity release experience 

The ERG said this now positioned its technology arm Equitec as a unique offering to borrowers aged 50 and over. 

Mark Gregory, founder and CEO at ERG said: “Partnering with Moneysupermarket brings about valuable change and is set to enhance the whole equity release customer experience.   

“This has always been our goal and with the implementation of SmartER, which is swiftly becoming the key point of entry to market, consumer choice, independence and transparency has now been made more widely available.” 

He added: “We understand the value this holds with consumers, given that there has been a sharp rise in the amount of people now using online tools for research purposes.  

“Given the breadth and depth of Moneysupermarket’s customer base, we foresee that this partnership will support growth within the market.”  

Ashton Berkhauer, general manager from Moneysupermarket, added: “We know more and more homeowners are looking to release equity to support their choices in later life. Our partnership with ERG allows homeowners to compare the equity release market and see the options that match their specific requirements.” 

 

Identifying benefits

Jim Boyd, CEO of the Equity Release Council, said there needed to be more recognition of the benefits of equity release. 

He added: “One of the biggest challenges facing the equity release industry is how to ensure that property is included when wider retirement conversations are taking place. To get a seat at the table, we need to continue to push for more recognition of the benefits of these products and make it easier for people to explore all their options.   

“We therefore welcome the partnership between ERG and Moneysupermarket as it will help more people to have these vital discussions around property wealth during their retirement planning.” 

ERG’s SmartER technology is available to advice firms and this can be integrated into an adviser’s website. 

Gregory added: “Our suite of products form part of the one-system approach to our technology, completely aligned to Consumer Duty, going beyond the required guidance to form an industry-leading client and adviser journey.” 

A fifth of people do not expect to retire mortgage-free – ERC

A fifth of people do not expect to retire mortgage-free – ERC

A survey of 5,000 people conducted by the Equity Release Council (ERC) and Canada Life found that the 22 per cent who said current mortgage payments stopped them from saving towards retirement was higher than the 14 per cent who said the same in 2021. 

Some 19 per cent of respondents did not know if they would be mortgage-free by the time they retired. 

Nearly one in six – 16 per cent – said their mortgage debt was stopping them from retiring altogether, which was higher than the 14 per cent who said the same in 2021. A tenth said they could not reduce their hours at work because of their mortgage payments, a greater share than the four per cent impacted in 2021. 

As for their current lifestyle, 21 per cent said mortgage payments were stopping them from affording a comfortable lifestyle, up from 13 per cent in 2021. 

Respondents suggested this was affecting their wellbeing, as 13 per cent said mortgage worries kept them up at night, 11 per cent were prevented from moving home and seven per cent had to stop other family plans. 

 

Accessing property wealth 

The majority – 90 per cent – of respondents said it was important to be mortgage-free in retirement. 

The study found that it was less important to younger homeowners to be mortgage-free by the time they retired.

Despite its importance, just two-thirds of all respondents believe their mortgage will be cleared by this point, and this figure fell to 60 per cent among those aged 55 and over.

To support their lifestyles, respondents suggested they would rely on property wealth and later life mortgages. 

Some 31 per cent said accessing property wealth later in life would improve their finances and retirement income, up from the 25 per cent who believed the same in 2021. 

Just over a quarter – 26 per cent – said a later life mortgage would boost their income, which was higher than the 21 per cent who had the same view in 2021. 

 

Juggling retirement savings and mortgage bills 

Jim Boyd, CEO of the ERC, said higher interest rates pushing mortgage payments up was “making it difficult for homeowners to prioritise retirement savings alongside their mortgage and wider bills”. 

He added: “While this might be something they can just about manage in the short term, the real concern of this spike in mortgage costs is the strain it puts on people’s long-term financial resilience. It’s truly alarming that mortgage debt has become so uncomfortable that people are having to put off starting a family, ending a relationship, or changing career. Having to push back key milestones and life moments like this is not only disheartening, but could ultimately be detrimental to society as a whole.

“Rather than struggle against the tide, we need to recognise we are in a new era where the goal of becoming mortgage-free will, for some people, be less important than the practical need to access property wealth in later life. With approximately £2.63trn of net housing wealth in homes owned by people aged 65 or over, there are clear signs that a shift in the national conscience is underway and property wealth is stepping into the spotlight for retirement planning conversations.”

Tom Evans, managing director of retirement at Canada Life, added: “Retirement feels like a distant dream for many, and having worked hard throughout life, it’s logical to hope or even expect to be mortgage-free when reaching this milestone. As the past few years have shown us, though, unexpected changes can happen, with plans getting turned on their head. As such, many of us will face the possibility of having to adjust our ways of living in retirement.

“Whilst this may feel unsettling, it’s important to remember that there are always options. Lifetime mortgages now offer greater flexibility to individual needs, and so more people may consider the prospect of using property wealth alongside other assets to fund retirement. Our customer data show that paying off an existing mortgage has been the top reason for releasing equity for the past six years, but this is just one of many drivers for customers releasing value from their homes. 

Spry Finance joins Equity Release Council

Spry Finance joins Equity Release Council

The firm is part of the Irish-owned Seniors Money Group, which had more than 15 years of experience offering lifetime loans to over 30,000 customers across the globe. This includes Ireland, Spain, Australia and New Zealand.

By joining the ERC, Spry Finance commits to consumer protections and customer service by adhering to the trade body standards.

The Equity Release Council now has 759 member firms and 1,800 individuals registered.

Jim Boyd, CEO of the ERC, said: “We welcome Spry Finance’s decision to join the ERC, whose standards underpin the UK market, which is considered to be the most sophisticated internationally.

“All advanced major economies are facing the same challenges from a rapidly ageing population and inadequate retirement savings. We are committed to working with Spry and our wider membership to ensure equity release products are safe, flexible and reliable at a time when they are an increasingly important feature of every adviser’s financial planning toolkit.”

John Moriarty, CEO of Spry Finance, said: “As the sole provider of equity release products in the Irish market, we are well aware of both the opportunity for growth and the importance of ensuring good outcomes for every customer.

“Membership of the Council will allow us access learnings and experience that will be helpful to us as we continue to develop and implement our strategies for product development, for marketing and communication and for industry-leading customer service and management.”

The ERC recently added Countrywide Surveying Services (CSS) as an associate member.

Scottish people most comfortable releasing equity to help family

Scottish people most comfortable releasing equity to help family

According to research from Hodge, which gathered views from 1,240 people between 16 and 80-plus, 84 per cent aged under 50 would need financial support from family to help with the cost of living.

As a result, over a quarter of people aged 50 and over would consider releasing funds against the value of their property and 40 per cent feel comfortable with the idea overall.

In Scotland, this rises to a third of people aged 50-plus who would be happy to raise equity through their home to support a family member.

 

Comparison across the UK

Andrea Roberts, national account manager at Hodge, said: “It stands to reason that people living in different areas of the UK are going to feel financially challenged in different ways, in accordance with the pressures of the economic climate presented by the individual region in which they happen to live.

“What’s interesting about these findings is it’s not the areas of the UK we might conventionally consider as being the wealthiest where people are most willing to draw on the value of their own assets to benefit those dear to them in a financial sense.

“London property prices mean those living in the capital have more equity in their homes to share, which may not necessarily be the case across Scotland.”

She continued: “This could suggest people across the UK are becoming far more savvy in the way they distribute their wealth generationally, and increasingly flexible in their attitudes towards drawing on the foundations of a family financially in order to provide a better future.”

“This is positive news in the current climate, where it’s becoming abundantly clear from our ongoing research that people living across the UK are going to be asking family members for help financially for some time to come.”

Hodge has recently lowered later life rates three times in as many months towards the end of last year and at the start of this year.

The lender has also enhanced criteria to lower the stress test for pound-for-pound remortgages, increasing income multiples on purchase and remortgage, and a reduction in living costs in light of the changes to the energy price cap.

Roberts said: “Our focus at Hodge has always been to respond to market pressures with the aim of supporting the brokers we work with and their own customers in the moments that matter – and we’re working harder than ever in light of this research to make sure that continues.

“With this in mind, the ability to release equity from homes to help our loved ones out in times of need is proving increasingly useful within the current economic climate, and I can only commend the generosity of the Scottish people in leading the way on this!”

Equity release ‘increasingly being used by the middle classes’

Equity release ‘increasingly being used by the middle classes’

According to Pure Retirement, the firm saw an uptick in 2023 equity release applications from homeowners with a property value between £250,000 and £399,999 to 36 per cent. This is a rise from 35 per cent in 2022.

The lender added that applications for properties between £400,000 and £549,999 have jumped to 19 per cent in 2023, an increase from 17 per cent in 2022.

Pure Retirement, which recently removed fees on its Classic products, said that such applications for properties between £550,000 and £699,999 stayed unchanged on an annual basis at eight per cent.

The lender added that the data showed that the middle classes were “firmly comfortable” in using equity release to support family members through gifting, as 12 per cent of equity release among owners with properties valued between £400,00 and £700,000 went towards a living inheritance.

The report noted that those applications from applicants who owned homes more than halved between 2022 and 2023 from one per cent to 0.4 per cent.

Those applying with properties valued between £100,00 and £249,999 fell two per cent year-on-year (YOY) to 26 per cent in 2023.

Pure Retirement’s CEO Paul Carter said: “These latest figures demonstrate unequivocally that lifetime mortgages are anything but a product of last resort for those from lower socioeconomic groups, and have instead evolved to become an effective financial planning tool for over-55s from all walks of life.

“The shifts in house values among applicants points to equity release increasingly being used by the middle classes, with one in 25 cases also coming from owners of £1m properties, underlying the broad audience that modern and sophisticated equity release products now appeal to thanks to ongoing product development.”

Clearing a mortgage remains top use of equity release – Canada Life

Clearing a mortgage remains top use of equity release – Canada Life

Data from Canada Life revealed that 41 per cent of people used equity release for this purpose in 2023, making it the sixth year running that this has been the main motivation. 

Home improvements were the second-most common use, with 28 per cent of people naming this, while 17 per cent used the unlocked funds for day-to-day living costs. This was compared to shares of 32 per cent and 20 per cent in 2022 respectively. 

A fifth of people used equity release funds for a holiday, up from a share of 15 per cent in 2022. Canada Life said this brought this back to pre-pandemic levels, when around 21 per cent of people used equity release for this purpose. 

Meanwhile, 16 per cent of people used the product to consolidate unsecured debt, equal to the share of use in 2022 and slightly down on 2021’s segment of 18 per cent of people.

Sadna Zaman (pictured), proposition development manager for home finance at Canada Life, said: “Customers are continuing to use equity release for a wide variety of reasons, from home improvements to paying off existing mortgage borrowing. Day-to-day living remains within the top five reasons for releasing equity, with homeowners using the wealth they have built up in their properties to potentially offset increased outgoings thanks to the cost-of-living crisis.” 

“The variety of motivations for releasing equity highlights the flexibility and accessibility of the options available, allowing homeowners to enjoy their retirement in a way that best suits them and their families. However, equity release is a lifelong financial decision, so it’s vital that the long-term costs are considered.” 

Earlier this week, Canada Life announced that its equity release sales had fallen by £1bn annually to £247m in 2023. This reflected the performance of the wider market, as data from UK Finance showed that later life lending declined by 42 per cent to £4.1bn last year, while figures from the Equity Release Council (ERC) revealed a £4bn drop in lending to £2.6bn.

L&G teams up with Finova for tailored lifetime mortgage pricing

L&G teams up with Finova for tailored lifetime mortgage pricing

L&G Home Finance, which recently introduced a personalised approach to lifetime mortgage pricing, will use Finova’s Optimo decisioning engine platform to consider a borrower’s circumstances, then decide the price for each mortgage application. The lender will also be able to test pricing for new products without making changes to its underlying technology. 

The Optimo platform can analyse a borrower’s data to adjust rates and fees in real time. This is expected to limit the impact of last-minute rate changes and cut the application decision time. 

Optimo’s functions can also be applied to other lending types, such as complex credit. 

Rowan Clayton, product director at Finova, said: “At Finova, we’re always thinking about how our tools can tackle the speed bumps getting in the way of lenders’ daily tasks, and how we can improve the journey for their customers.

 “To that end, we’re thrilled to be sharing our decisioning engine Optimo with L&G Home Finance, who can now lean on our technology when it comes to making rapid decisions about risk, liability, or affordability, for their customers. With Optimo, L&G’s customers can access personalised and fair rates on the market, and crucially, the lender can service borrowers quickly and fairly as the lending price war intensifies.”

Cheryl Hinton, chief technology officer (CTO) at L&G Home Finance, added: “The lifetime mortgage market has evolved significantly over the years, and at L&G Home Finance, we’re always innovating to meet changing customer needs. 

“That’s why we’re delighted to adopt Finova’s flexible Optimo system to help power faster and more tailored pricing decisions, to give borrowers value for money by offering them the best rate for their specific circumstances.” 

Equity release sales dive in 2023 but innovation should boost growth – Key

Equity release sales dive in 2023 but innovation should boost growth – Key

The Key Market Monitor covering 2023 showed that, within this, 51 per cent of sales were for drawdown equity release plans and 48 per cent were for lump sum mortgages. 

The value of new lending for both lump sum and drawdown plans declined by 62 per cent to £2.1bn, while the total amount lent was £2.7bn last year. 

Some £411m of drawdown was provided, as well as £162m of further advances from existing plans. 

Although the equity release market was impacted by base rate rises and the aftermath of the mini budget, Key said there had been a “good boost in consumer demand” at the start of this year. 

The firm said product innovations such as the introduction of payment term lifetime mortgages (PTLTMs) were “very encouraging”. 

This week, More2life announced it had launched a flexi PTLTM, which allowed borrowers to access a higher loan to value (LTV) rate than usual. At the end of last year, Legal and General (L&G) Home Finance also introduced a PTLTM, which it said would bridge the gap between a traditional and retirement interest-only (RIO) mortgage. 

Key said the flexibility offered by lifetime mortgage providers was positive, as 86 per cent of plans sold last year had fixed early repayment charges (ERCs) and 74 per cent had downsizing protection. 

 

Equity release borrower behaviour 

On average, borrowers released £74,148 from their homes, compared to £106,806 the year before, while the average interest paid went up from 5.7 per cent in 2022 to 6.63 per cent in 2023. The average age of borrowers increased slightly from 71 to 72. 

Some 72 per cent of the equity released from their homes was to make mortgage and debt repayments, which was up from a proportion of 67 per cent the year before. Some 12 per cent of the money was used to remortgage existing equity release plans. 

Of the money released, 16 per cent was gifted to family, up from 14 per cent the year prior. Just three per cent was used for a holiday. 

More than a tenth – 12 per cent – of the equity released in 2023 was used for home improvements. 

 

Sector has ‘reasons to be cheerful’ 

Will Hale (pictured), CEO at Key, said: “The later life lending sector does have some real reasons to be cheerful in 2024. We have already seen a good boost in consumer demand as the new year gets into full swing. 

“We have seen the first shoots of some interesting product innovations that can provide a real boost for market growth, whilst addressing unmet customer needs. The variety of products that offer repayment options has increased, and these provide the potential for customers to both release more cash in order to meet all their needs and to reduce their cost of borrowing – two things that have been barriers to volumes post-2022.

“In addition, towards the end of 2023, we saw gilt rates drop to below four per cent, and as base rates drop in 2024, I am confident this will breathe new life into the core equity release market. We should feel confident the later life lending market is set for a return to growth in 2024.” 

Canada Life brings in £247m in equity release sales in 2023

Canada Life brings in £247m in equity release sales in 2023

According to Canada Life’s latest results, this is a decrease from over £1bn in equity release sales in 2022.

The later life lending market had a turbulent year due to rising rates leading to a dampening of activity, with Equity Release Council (ERC) figures showing that overall later life lending came to £2.6bn in 2023, a fall from £6.2bn in 2022.

Data from UK Finance also echo the above, with Q4 2023 figures showing that total lending to older borrowers decreased 42 per cent to £4.1bn.

Canada Life continued that its total sales came to £4.3bn, a record, which included record sales of individual annuities of £1.2bn. The latter is more than double the 2022 figures.

The company reported £621m in bulk purchase annuities along with £2.2bn in wealth and asset management sales, which includes offshore bonds.

Canada Life’s base earnings came to £229m, with assets under management (AUM) coming to £26bn.

The company also confirmed that the sale of its individual protection book had been completed during the period.

Lindsey Rix-Broom, CEO of Canada Life UK, said that the company had “delivered a strong performance in challenging conditions, which demonstrates how we, as a well-diversified business, can weather the ever-changing headwinds”.

She continued: “Our single-minded focus on delivering great customer outcomes means we are well-placed to support advisers and their clients in a period of economic and geopolitical uncertainty.”

Rix-Broom said that, looking ahead, it would “continue to invest in modernising our systems, processes and introducing new digital technology that will further benefit customers and advisers.”