Later life lending “stands at a crossroads”

Later life lending stands at a crossroads as 28% of advisers seek products which bridge mainstream and later life needs suggests findings from a report conducted by later life lending platform Air.

A need for products with a more flexible criteria and those that allow easier capital repayment are the types of features that are ‘needed’, with an emergence of new offerings from companies such as Legal & General and more2life.

Whilst the traditional view of an Equity Release customer remains relevant within older demographics of ‘property rich, cash poor’ individuals, there is a new generation of customers emerging with very different mortgage needs.

Having received less benefit from the boom in property prices than their parents and having needed significantly higher multiples of loan to earnings to purchase their property, rather than having paid off mortgages as the previous generation, many of these individuals face the need to extend mortgage debt into retirement.

In combination, the average income in retirement stands at £18,148 per annum in 2023, according to ONS data,1 well below the £31,300 that the Pensions and Lifetime Savings Association deems necessary for a ‘moderate’ lifestyle in retirement meaning many have limited capacity for debt repayment beyond retirement age.

With more than 22m over 50s in the UK and 49% of those aged 45-54 in the UK are still paying off mortgage debt, according to the House of Commons Household Debt report.

It is predicted from these statistics that there may be a growing need to transition residential mortgage debt into later life products. For these borrowers, ensuring a seamless transfer to later life mortgage products could become a necessity.

Paul Glynn, CEO at Air, commented:

“The data showing the upcoming wave of older borrowers needing to manage mortgages into retirement is clear, detailed and inarguable. As a sector, we need to adapt now to be ready.

“For this new cohort of customers we should be considering the mainstream residential and later life sectors as a continuum of lifetime borrowing needs.

“Bringing together the later life and traditional mortgage markets through triage and referral processes, innovating with hybrid products and ensuring greater collaboration across sectors will be no small feat, but will be essential to ensure good customer outcomes for this growing demographic and a strong future for our sector.”

The Air report shows, advisers are already adapting to this change, with the vast majority highlighting the need for product innovation between residential and later life products.

Of these a quarter of the later life advisers surveyed (28%) highlighting the need for lending products which can transition a customer from a capital and interest mortgage into a roll up equity release mortgage after an agreed term.

A further 27% said that products with more flexible criteria are the types of innovative features needed to address the demands of clients in the later life lending sector, whilst 26% pointed to products which more easily allow capital repayment (26%).

16% of the adviser sample reported that a lack of product options was a major problem for the industry.

To inspire the changes necessary to achieve good customer outcomes for this growing demographic of over-50s retiring whilst paying off a mortgage, Air has developed the Comprehensive Conversations Manifesto, containing six pledges for businesses in the UK advice sector:

  • Adhering to regulatory and industry guidance
  • Provide support and education to support continually enhancing capabilities within the sector
  • Use tools and technology to keep consumer affordability at the heart of the advice process
  • Explore all options available to customers and expand advice, product and service offerings where possible
  • Ensure that customers have an understanding of non-product related options
  • Create safer tracks for our wider industry to match good customer outcomes

Ben Waugh, Managing Director, more2life, said:

“This report is anchored around achieving better customer outcomes. It doesn’t matter what type of broker you are, what trade body you come from, whether you’re in mainstream or in equity release. The bottom line is it’s all about providing good customer outcomes with the best product for the customer’s needs.”

Kay Westgarth, Head of Sales, Standard Life Home Finance , commented:

“Customers are individuals and they all have different needs. Brokers must have a comprehensive conversation to really understand their circumstances and which products might be suitable to them. Then it is incumbent on us as individual manufacturers to provide the broadest suite of product solutions to meet those needs.”

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