The society’s group retail director Chris Rhodes, revealed plans to launch an equity release product range, currently in the research and development phase, which he said promised to be ‘safer’. In the same month, Nationwide increased its age limit for borrowers accessing mortgages from its mainstream range, lifting the cap from 75 to 85-years-old.
Air Sourcing launched last week, the first lending into retirement sourcing system, featuring both traditional lenders and equity release providers.
The will to serve this market is there. But so much more needs to be done to offer older borrowers the solutions they need to manage their property finances as they edge ever closer to state retirement age.
This week, we’ve asked our panel of intermediary experts to reveal their experiences of placing later life clients, how the market has evolved and the changes the industry has undergone to meet the demands of borrowers.
Mark Dyason, Edinburgh Mortgage Advice Brokers, says lenders are waking up to the needs of the growing population of older borrowers but are still some way short of offering products which reflect that.
Gary Webster, head of partnerships Equity Release Supermarket, looks at how increased lender interest in this market has driven down prices and pushed up standards.
Paul Flavin, managing director of Zing Mortgages, talks about the forces driving up demand for later life mortgages and how his firm is adapting to serve his customers’ needs consumer lifestyles evolve.
Two years ago the drawbridge seemed to be up on customers looking at lending beyond retirement. There were lenders happy to go up to 70 and a couple beyond, but the direction of criteria seemed to be tightening – to the detriment of the clients.
Today the direction of criteria seems to be looking at areas where we can deliver more for older clients, but this change is very slow from the larger lenders. Some of the smaller lenders have led the way in looking at this niche and who can blame them?
The loan-to-value tends to be lower, the clients often have very settled employment and credit histories.
The good news is that the arrival of mainstream lenders means mainstream rates, so older borrowers are now getting rates that are keener than were previously available as well as the ability to borrow for longer. This means the first set of mortgage prisoners mentioned, shortfall endowment clients, the very people now looking for help to get rid of the rump of their loans are finally being catered for.
This still isn’t job done. My father is still in employment at 73 and an increasing number of people are choosing to do this for the active role as well as for financial reasons – it is time more lenders reflected this. If we as advisers have the conversation with the clients about what they are taking on and the client is happy to do it, then more lenders should reflect this choice with the product offering.
There has been a noticeable improvement of late compared to the preceding two years for both the consumer and adviser. The later-life borrower has significantly benefited from competitive pricing and wider product features. New entrants to the Lifetime Mortgage sector have pressed for market share while some conventional lenders have relaxed their maximum age limits for customers who can prove their affordability and have a defined capital repayment strategy.
I noted with interest the recent article, reporting that Nationwide, although still at the research and development stage, want to enter the market with a new ‘safer’ equity release product. This is promised to come with competitive fixed rates, no access charges and a no negative equity guarantee. This is particularly noteworthy when we are currently experiencing higher consumer confidence as potential borrowers are becoming more reassured by the options of the Lifetime Mortgage. And so they should, as they offer flexibility across a broad range of key features ranging from interest paid options to defined early repayment charges, whilst continuing to be safeguarded by the Equity Release Council product standards. The market is currently offering the consumer access to lifetime fixed rates sub 5%, and a variable rate option of 2.96%.
Loan-to-value ratios have increased and narrowed much of the gap that was prevalent with health-related impaired plans, which has in turn helped later-life end of term, interest-only borrowers pay off outstanding mortgages.
On the technology front, ease of access is moving at a pace with some lifetime lenders beginning to embrace the digital age as brokers and consumers are benefiting from end-to-end paperless application processes, coupled with instant underwriting decisions.
Through the late nineties and early noughties, clients were taking out interest-only mortgages, convinced that it would be a short-term commitment or they would commit to making regular overpayments.
We’re now approaching the end of many of these mortgage terms, with lenders writing to clients enquiring as to how they intend to repay the lump sum, thus driving enquiries around loan extension options.
Both prime lenders and the second charge market are expanding their offering by extending terms well into retirement. The blending between a traditional mortgage and whole-of-life loan is becoming more and more entwined.
However, many of these clients are now of an age where extending the mortgage term may not be an option due to numerous reasons, not just age, such as income or credit, meaning equity release may be the only option.
But this doesn’t seem to be the only growth area for equity release. With people living longer, inheritance is not being passed down as early as it was. In the south, we have strong property prices combined with a clientele flush with decent pensions who have the ability to release equity and pass it down to siblings, enjoying the benefit of seeing first- hand the funds being used.
This can often be the case, more so than the perception that homeowners are releasing money to fund lifestyle. This notion is backed up by the fact that most new equity release deals we see are being taken with a monthly payment rather than the ‘roll-up’ option, which initially gave equity release such a bad name.
As our client banks grow we need to ensure we are able to offer what the customer is demanding. If the market we work in demands equity release then we need to ensure that we are able to offer this, either direct through our firm or through a relationship with a specialist in the field.
Equity release is a growing market that remains sustainable for the foreseeable future. To ignore this market could be a major miscalculation.