Paul Smulovitch responded to the article: Nature of mortgage broker role increases risk of burnout ‒ analysis

He said: “Excellent article and highlights the problems the smaller self-employed brokers face. Offering service and value to clients in an industry where if a deal doesn’t complete then we don’t get paid is a unique problem most people don’t see or understand, and adds to the stress and worry of the job.”

Tighter broker renumeration

Fixed-rate term interest-only mortgages (TIOs) can be taken out for five, seven, 10 or 20 years with the maximum term set at 30 years, LiveMore said.

Alison Pallett (pictured), LiveMore’s managing director of sales, said: “Mortgage Advice Bureau is one of the largest brokerage firms in the country so it’s great news that its intermediaries can now access our range of fixed rate TIOs. In addition to a one-off procuration fee of 0.55 per cent, brokers can take advantage of our ‘ongoing procuration fee’ which pays out 0.13 per cent each year for 15 years.”

The brokers would be required to “carry out an annual care call with their client to help identify and support anyone who may have become vulnerable since their mortgage application”, she added.

The lender said fee-free options were available and that maximum loan to value (LTV) ratios were 60 or 65 per cent, depending on the product. Unusually, LiveMore said, it takes into account not just a borrower’s salary but their other assets as well, such as current and future pensions, savings and investments, buy-to-let (BTL) rental income and state benefits.

Brian Murphy, head of lending at MAB, said LiveMore’s “approach in determining affordability, particularly their ability to consider a wider range of incomes, will, we are sure, provide increased opportunities for our advisers to assist even more customers achieve the right outcome for their home financing arrangements.”

A study by later life mortgage broker Responsible Life found that using a lifetime mortgage increased a borrower’s wealth by an average of 0.24 per cent per year. 

The firm looked at 230 equity release transactions from 2013 to 2015. It found that when compared to downsizing to a smaller and cheaper property, homeowners were usually financially better off because of the rising value of their homes. 

The broker analysed the house price performance since completion in each customer’s local authority. It then created a downsizing scenario for every borrower that left them with the same amount of money they released using their lifetime mortgage. The firm also factored in the cost of moving including legal fees, moving costs, stamp duty and estate agent fees.  

The firm then assessed the local performance of the housing market then applied this to the downsized property valuation, to compare the financial position of customers across both scenarios. 

The net worth of borrowers was found to be an average of 1.85 per cent higher than if they had downsized. This was equivalent to £1,694 a year on average. When looking specifically at those who saw increases in the value of their homes, this gain rose to £2,420 each year. 

Among the cases looked at, the largest projected gain in net wealth when compared to downsizing was £262,328 over eight-and-a-half years. The client’s property was already high in value and is currently worth £5m. 

The largest decline in net wealth was £172,184 and this was another case where the client’s home was already high in value. 

The firm found that house price growth in the studied areas averaged out at 0.41 per cent yearly, suggesting that even small gains worked in the favour of homeowners. 

Steve Wilkie, executive chairman of Responsible Life, said: “This research is a real eye-opener. Downsizing has historically been the default option for many people wanting more money in retirement, but our study shows this can be a false economy.  

“The vast majority of borrowers in the study would have been worse off had they downsized. Thanks to the strength of the UK housing market, this is largely because they would have surrendered a larger asset for a smaller property that would have appreciated less over time.” 

He added: “Our analysis shows that unlocking property wealth using a lifetime mortgage can make the most financial sense over the long term, giving homeowners every reason to stay in a treasured family home without having to sacrifice their quality of life in retirement.” 

According to the Mortgage Broker Tools (MBT) affordability index, just 37 per cent of borrowers aged 65 and over are able to get the loan size they request, compared to three quarters of younger people. 

Further, some 28 per cent of borrowers aged 65 and up were offered a smaller loan size than they requested. For those under 65, 24 per cent were offered a smaller loan. 

However, the average loan size required by older borrowers is significantly lower than their younger counterparts. 

For those aged 65 and up, the average loan in March was £100,000 while those aged 65 and under requested £216,750 on average. 

There are also fewer lenders able to cater to the borrowing needs of older people. 

According to MBT’s index, some 35 per cent of lenders were unable to lend to over 65s at all in March, up from 26 per cent in January. 

This drops to six per cent of lenders being unable to help those aged 55 and over, and falls further to one per cent when dealing with younger borrowers. 

Tanya Toumadj (pictured), CEO at Mortgage Broker Tools, said: “As a culture, we often focus quite heavily on younger borrowers and, in particular, first-time buyers. However, we need to have a well-functioning housing market at all stages.” 

She also noted that the UK had an ageing population, with the number of people aged 65 and over expected to exceed those aged 18 and under. 

“This is a growing demographic, and they do not fit into a simple box, with many opting to work steady jobs for longer, for example,” Toumadj said. 

She added: “While age can be a concern for what is fundamentally a long-term commitment, it is just not that simple. The mortgage market needs to focus on the individual, and in doing so provide a more certain landscape for borrowers who might present just as strong a lending option as many of their younger counterparts.” 

This was a 34 per cent increase on the equity released from homes by borrowers aged 55 and over in the first quarter last year. 

According to the Equity Release Council’s (ERC’s) market statistics for Q1, the number of borrowers accessing equity release reached a quarterly high of 23,395. This is the first time customer numbers have exceeded 23,000 during any quarter. 

This was also a rise on the 19,975 customers serviced by the sector in Q4 2021 and the 16,527 borrowers recorded during the same quarter last year, when pandemic restrictions were still in place. 

Kay Westgarth, head of sales at Standard Life Home Finance, said: “This level of growth echoes the increasing demand we are seeing for equity release products as a greater number of over-55s recognise the benefits of later life lending as a way to boost their retirement income.” 

Borrower trends 

The number of new plans agreed amounted to 12,174 in Q1 2022, a 21 per cent increase year-on-year from 10,030 in Q1 2021.  

March was the busiest month for new plans with 4,560 completions recorded. This was the same month the ERC announced its fifth product standard, allowing new customers to make penalty-free partial repayments. 

Will Hale, CEO at Key Later Life Finance, said: “Product flexibility is vital to the sector’s continued development, and it is worth noting that customers saved almost £100m in future interest costs in 2021 by making penalty-free partial repayments.   

“With the introduction of this flexibility as the fifth ERC standard, customers now have more choice than ever before to find a product which fits with their changing circumstances through later life.” 

Drawdown lifetime mortgages were the most popular product type for new equity release borrowers, accounting for 54 per cent of plans while the remainder opted for a lump sum lifetime mortgage. 

The average size of the first drawdown instalment made by new borrowers increased by five per cent to £94,215 while the average lump sum rose by seven per cent to £131,781. 

Combined, the average loan accessed by new equity release customers increased by six per cent annually. This matched March’s inflation figure but falls behind the 11 per cent annual house price growth. 

Stuart Wilson, CEO at Air Group, said: “Until inflation starts to ease, we anticipate that we will see the number of borrowers using later life lending to reduce the pressure on everyday expenditure continue to build.” 

Existing customers 

Some 9,450 existing customers with drawdown lifetime mortgages withdrew funds from their agreed reserves. This was an increase on the 7,571 recorded in the previous quarter and the 5,566 seen in Q1 last year.  

However, it was below the pre-pandemic peak seen in Q1 2020, when 9,805 existing drawdown lifetime borrowers released funds. 

Stuart Wilson, corporate marketing director at More 2 Life, added: “With drawdown products currently making up almost three quarters of the plans sold annually, it is good to see these flexibilities in action and shows a robust path forward for the sector.  

“Looking to Q2, it’s likely that with inflationary pressures adding to existing demographic drivers, more over-55s will seek to augment their income and support loved ones by tapping into their equity while house prices remain high.” 

Some 1,771 further advances were agreed by existing borrowers. 

David Burrowes, chair of the Equity Release Council, said: “The popularity of equity release so far this year is the natural result of modern products offering greater flexibility and a property market where growth has far outstripped inflation, alongside an ageing population.” 

This will allow SMG’s brokers to recommend Livemore’s mortgage products specifically designed for underserved borrowers aged 50 to 90+. This includes its interest-only and retirement interest-only range.

Livemore’s approach to affordability considers all income including pensions, investments, assets, savings and buy-to-let income.

Jon Sturgess, sales director at Livemore, said: “Working with SMG gives us a fantastic platform to showcase our products and proposition. Our fresh look at affordability and flexible approach to underwriting means that intermediaries will be able to offer more choice to their customers than has previously been available.

“The mortgage market has been underserving the older generation for too long, but we can plug that gap.

“Our ongoing procuration fee rewards intermediaries and we are excited that SMG is going to be part of this journey.”

The procuration fee is 0.55 per cent gross with the option of an additional annual 0.13 per cent gross for intermediaries who contact their clients each year with a customer care call. This can be for up to 15 years but is only paid for the time the loan is with Livemore.

Barney Drake, CEO at Specialist Mortgage Group, added: “The need for competitive products for those in their later years continues to have steady growth and SMG wholeheartedly welcomes Livemore onboard.

“In any crowded market, innovation delivered through product and service design adds tremendous value, so I am particularly excited about this new partnership.”

In mortgages, we have seen huge criteria changes and a rush on intermediary services to support record purchase transaction demand, and now secure rates on remortgages amidst ever-escalating cost.

But from a consumer perspective, it feels like the pandemic was the catalyst for ongoing change in the way we think about what we want from our homes and our lifestyles, and the way in which property can support those goals.

Having open conversations with your clients as well as keeping an eye on trends and research can ensure that you keep one step ahead of the changing market.

With that approach in mind, I thought I’d explore the impacts of the pandemic yet to come, and ways to support discussions with some of the following types of clients:

First-time buyers

With deposit and affordability challenges rife in the marketplace, and the approaching end of Help to Buy, the profile of joint borrower, sole proprietor mortgages seems to be growing.

For me, the most interesting of a new breed of options is with Generation Home. The proposition is innovative, and its modern marketing approach and intelligent use of language potentially gives us new opportunities to talk to a different breed of customer who may otherwise either not be engaged with buying or home, or simply think it’s impossible.

Buy-to-let borrowers

You may have seen some information about green mortgages recently. They seem quite vogue, right?

Clearly saving the planet is hugely important, but how can these be used to help your advice process and client engagement? The key is to understand the upcoming energy performance certificate (EPC) requirements on property that start with landlords. Given the requirements, we are already hearing reports of buy-to-let investors increasingly looking at new-build properties not affected by this regulation, thus potentially saving a great deal of hassle and investment in the longer term.

Holiday let

The rise of holiday let and second home purchases is not exactly a new headline, and I am sure you have all experienced a surge in enquiries on this basis. We like to flex our advice muscles when having client conversations, so why not go a step further and get some excellent know-how in your back pocket?

The Sykes Staycation index is one such resource. Who knew a hot tub could make your client’s holiday cottage potentially 54 per cent more profitable?

Older borrowers

The ‘Thursday Murder Club’ effect?

Bear with me on this one – many older customers will have experienced long periods of isolation and anecdotal feedback has reported a surge in interest in the luxury concierge-style retirement villages. You know the ones, advertised in the Sunday papers’ property pages with swimming pools, gym, and a desirable community vibe.

Given such a location was the setting for Richard Osman’s best-selling novel, which is about to be turned into a film, will some of your older customers read about such a community and think to themselves, ‘I want a piece of that’?

If you engage with equity release and downsizing options, you could be the gateway to helping them achieve this dream and your business could be the beneficiary of a ‘Thursday Murder Club’ effect.

It is with us all every single day, and in recent weeks – and in horrendous circumstances – it is there on our television screens daily too as a consequence of Russia’s invasion of Ukraine.

Death cannot be beaten or cheated, it is a racing certainty of life and yet the thought of it often turns our stomachs and for the vast majority ‘doesn’t bear thinking about’.

For advisers however it, at the very least, has to be addressed, and even more so for advisers with later life clients – not necessarily because they are more likely to die sooner but because the consequences of them doing so are perhaps more far-reaching than for others.

Take wills, for example. According to Canada Life, 31 million UK adults don’t have a will in place and while that number grows smaller the older people get, the thought of working with an older homeowner who doesn’t have their affairs in order should be an uncomfortable one for most advisers.

The feedback I get from later life advisers is that they will often raise such matters with clients although as one adviser recently told me, the client “will very rarely do anything about it. They see the sense but it’s difficult for them.”

Lasting Power of Attorney

In our product space, the Lasting Power of Attorney (LPA) is another key area that needs to be addressed. And again, even though it is, those advisers who are writing such business is extremely low.

I’ve often thought that LPAs should be mandatory with equity release products, especially in a sector dominated by drawdown where if a customer isn’t able to make decisions for themselves – for whatever reason – but doesn’t have an LPA in place, it means they can’t access the money that is rightfully theirs.

In that sense, LPAs which ensure those instructed are able to make these important decisions seems like an obvious element to incorporate into the provision of advice, because while people clearly won’t think that anything untoward can happen to them, it does. It happens to people every single day.

Historically, there has been a slight reticence from some advisers to get involved in this aspect of the market. Which if you think about it is just another form of protection, albeit a legal one.

Perhaps they think they don’t have all the necessary detail, information or experience to be able to help a client here, or they are still not comfortable broaching these issues. Which I suspect is less of a concern for later life advisers, but you never know?

The issue of who to partner with on this can also be a tricky one, as is the price, which often differs greatly across regions, and it’s certainly the case that there are – shall we say – ‘less robust’ propositions out there which could end up causing more trouble than they are worth.

How advisers can help

What appears to be important though is having a national solution, one that can provide those services to clients in a trusted manner, whether that is face-to-face, via tech, or indeed on a self-serve basis. We’ve certainly been looking at options in this area for our adviser members and hope to be announcing a partnership which covers all these bases in the future.

The point however is really not to shy away from the conversation.

Of course, few people will want to talk about their own death, or potential catastrophic ill-health, and we clearly wish all our clients are a long way from either.

But you cannot get past the reality of life, and how it moves on and eventually ends.

It’s far better to have your clients in the best possible position to deal with all manner of life events, and death, and for you to help them through this process, rather than potentially leaving both them and their families in a terrible position should the worst happen sooner than expected.

It aims to provide alternative mortgage solutions for borrowers hit by soaring inflation, interest rates and costs of living who it suggests are ‘neglected’ by conventional lending systems.

The expansion is expected to help Scottish customers in the 50 to 90+ age range access LiveMore’s products over the coming year. Through its retirement interest-only (RIO) and term interest-only (TIO) products, LiveMore aims to give Scottish borrowers access to longer-term fixed rates so they can get a mortgage where they might otherwise struggle with a less bespoke approach.

The company said it sees Scotland as a high-opportunity later life market that is currently underserved.

The Financial Conduct Authority’s latest mortgage prisoners review revealed that Scotland is home to 5,500 of the UK’s 47,000 mortgage prisoners. Scotland also has the highest concentration of 50 to 90+ people per capita in the UK at 40 per cent compared to 38 per cent in England and Wales, which is expected to increase to 44 per cent by 2040 versus 42 per cent in England and Wales.

Citizens Advice Scotland reported in December 2021 that the number of Scots seeking advice on mortgage arrears has increased by 38 per cent, which it predicts will go up in 2022 once Covid support stops.

LiveMore’s managing director, Mike O’Brien, told Mortgage Solutions: “More than 10 per cent of UK mortgage prisoners are in Scotland and there’s relatively thin competition there, in spite of that high concentration. We’re seeing that in the volume of enquiries from consumers and brokers asking about whether we’re lending in Scotland, and all of that points to a need from borrowers and an opportunity for us.

“We’re focused on people who have incomes that high street lenders won’t service and have neglected, and what we’re also seeing is a lack of representation. It makes sense to offset that stable income of pensions stream with a stable mortgage so there are no nasty surprises. We’re finding that it’s not until you hit the retirement phase where people find that they’ve had lenders looking to lend to them throughout their life, they hit this phase and they’re seeing fewer options which makes no sense. They’ve got stable income streams, strong credit, demonstrable asset management. They shouldn’t be penalised for the life events they’re likely to see.

“People are looking at rising inflation, rising interest rates and this is causing a real demand for longer fixed rates since the new year, with a particularly high demand for five to 25 years, or fixed for life plans to manage the ongoing volatility by getting fixed rates now.”

LiveMore hopes its more bespoke approach to lending will help Scottish brokers and borrowers reach their financial goals that they can’t through conventional high street systems. Customers will have a range of fixed rates from five to 30 years, a maximum loan to value (LTV) of 75 per cent, and an alternative to downsizing or applying for an equity release mortgage, which many over-50s can feel forced into.

O’Brien added: “We have one of the widest property criteria in the market as we’re happy to look at background assets. We have a very good understanding of how borrowers’ income and assets change as they move on into retirement age so we’ve got a real focus on helping people in later life with things like care fee programs, and product breaks for those experiencing life events (e.g. death of a spouse, or sickness) as we know that the probability is higher and we don’t want to penalise borrowers for that. We want to be there with them for the journey.

“Our vision is that anyone with a strong payment history – we want to provide them with an option instead of channeling them down a route. We’re trying to provide good value solutions relative to other options for borrowers.

“We need to be competitive within each of those segments, but our options compete on criteria as opposed to price – but for those borrowers where we have wide criteria, I’d argue that we are good value.”

It is inevitable that such pressures have increased separations and, according to The Office for National Statistics (ONS), men and women over 60 are getting divorced at higher rates than in the past.  

The cost of splitting up can be significant and it is important that divorcing couples are aware of the impact it can have on their finances, particularly when nearing, or in, retirement.  

As most people (74 per cent) aged over 55 in England own their own property, dividing up the family home fairly is usually the key consideration for couples when separating.  

But, like pensions, the home is not a straightforward asset that can easily be divided.  

How mortgage finance can help 

Using the equity that’s accumulated in the home can be a solution. Lifetime mortgages can help pay off the existing mortgage and, potentially, release additional funds to aid the financing of a new home.  

The equity release market has come on leaps and bounds in recent years, with more flexible products and cheaper rates and may be a useful option for couples to consider. 

As well as the value of the home, couples may have pensions and savings to consider. With fresh financial challenges on the horizon, from the rising cost of living to the suspension of the triple lock, ensuring a fair settlement in a divorce is vital.  

Research conducted by Legal and General in 2021, found that just 12 per cent of UK adults aged 50 and over who are divorced, properly considered pensions when splitting up. In fact, a quarter of couples actively waive their rights to pension wealth, despite the fact that individuals may be entitled to their ex-spouse’s pension, and it could be worth more than the shared value of property. 

The gender finance gap 

Additional research published by the Manchester Institute for Collaborative Research on Ageing (Micra) and the Pensions Policy Institute, found that married men aged 55 to 64 have more than three times the pension wealth of married women of the same age. 

By and large, women tend to live longer than men and throughout their lives are more likely to experience gaps in their pension savings due to childcare responsibilities, which leads to pension inequality in later life.  

Debora Price, professor of social gerontology at the University of Manchester, and one of the experts who worked on the report explained: “The pensions world is complex and ever-changing and, unfortunately, divorce traditionally damages women’s finances more, in comparison to men. Pensions are never in joint names and equal provisions are not often discussed.  

“In divorce, a common choice is for the woman to keep the family home and the man to keep the pension. He will continue saving into his pension, but she may focus on paying off the mortgage. When they both reach 60, it’s likely he’ll have a house and a pension. She may have a house but no pension and will have to keep on working for much longer into retirement, or face a parlous future, filtering in any health or other misfortunes could leave her in a very tough place.” 

A long-awaited change in legislation, bringing in ‘no fault’ divorce, comes into play in April, potentially reducing conflict for many couples. But this change could make consulting a financial adviser, as well as a solicitor, even more important to help ensure all financial elements at play are fairly considered and divided.  

It will never be easy to prepare for a divorce, but timely and high-quality financial planning can help to support both parties to make the right decisions and avoid any nasty surprises down the line.