Written by Will Hale, CEO of Air and Richard Howes Mortgage Director, Paradigm
The pace of change and expansion in the later life lending sector has been rapid in recent years but some statistics still have the capacity to surprise. One such is the startling 156% increase in the number of older borrowers taking out longer mortgage loan terms over the past five years.
The first nine months of last year saw 22,103 mortgages taken out with a term of 35 years or longer by people aged 36 or over. In 2019 just 8,639 longer mortgage loan terms were agreed with buyers aged 36-plus.
The 2019 figure seems high enough but last year’s data is another level and is only likely to have increased given the ongoing strength of the housing market and the impact on affordability for first-time buyers.
It all adds up to a different customer journey with mortgage customers now less likely to have paid off loans before retirement and needing other options to help them balance retirement planning, retirement income and servicing debt.
Those societal and economic factors are the new normal and create a major opportunity for those advising in the later life lending market. However, extensive product innovation and the need to consider all options means there is increased complexity in getting to good outcomes for customers and so robust oversight and quality compliance support is a necessity if the opportunity is to be seized but risk managed.
The product response
Mainstream mortgages and the later life lending market have reacted to evolving customer needs with a surge of product innovation. In the mainstream market lenders recognise the new reality and the different customer journey with the availability of 30-year and 40-year terms being expanded and even becoming more common than the traditional 20-year or 25-year terms.
Maximum lending ages have increased rapidly for first-time buyers while the age at the end of payment term has expanded with some products even stretching beyond age 100. Innovation for equity release lenders has focused on products that cater for those who can and want to make payments which can mean lower rates and potentially lower early repayment charges (ERCs).
Some new products offer a price discount based on how much the client can pay each month which significantly reduces borrowing costs over the loan term even for smaller amounts. Some products offer payment holidays of up to three months and allow customers to miss up to two payments in a 12-month period and still keep the discount.
Assessing affordability is critical to ensuring all options are considered, not only when it comes to ruling in or out mainstream mortgages, Retirement Interest Only (RIOs) mortgages and Term Interest Only (TIOs) mortgages but also in sourcing the right lifetime mortgage recommendation.
The compliance response
Customers now need to consider all options and be supported in doing so. But as Air’s recent National Later Life Lending Conference on the theme “The Road to Success Begins With Comprehensive Conversations” which Paradigm attended demonstrated, the reality is that this is not always happening, or at least being documented, in a way that would be conducive from a compliance perspective.
At Paradigm the aim is to take the complexity out of compliance. Unfortunately, currently, compliance processes – much like mainstream mortgage advice – can be siloed.
Breaking down the product and advice silos is vital, and so is adviser confidence which grows the longer an adviser is active in the later life lending market. A clear, transparent and well documented advice process, overlayed with robust compliance and oversight, is the strongest route to delivering later life lending success, business growth and ensuring Consumer Duty obligations are met.
However, there remains inconsistency in the market. Advisers considering recommendations to clients for lifetime mortgages, RIOs and TIOs, for instance, at some organisations have compliance processes which mean they have to discuss pension income with them but not with clients aged 50-plus who are looking at mainstream mortgages. This product orientated rather than client-centric approach needs to adapt.
Vulnerability has to be discussed with equity release and later life lending clients under compliance processes as it should, and although we see this more and more with over-50 clients in general there is still some further work to do for most advisers around identification, implementation of appropriate interventions and documentation.
The same applies to involving the family of clients – with equity release clients it is a given under compliance processes at some firms but is not required with over-50s clients in general. The equity release and mainstream markets should be part of one market with similar approaches to compliance.
Digitised processes and effective use of AI tools can help to reduce the manual burdens and ensure consistent compliance overall. Investing in training will boost confidence and compliance quality and the adoption of innovations like mandatory call recordings, vulnerability champions, and shared best practice standards improves transparency and trust across the firm.
With the right blend of technology, training, cultural change, and evolving regulation, firms can overcome obstacles and tap into this market which is showing consistently strong demand and opportunity.
The technology response
The different customer journeys for clients in the mainstream mortgage and later life lending market does mean greater complexity and advisers need more support. Growing demand means technology has an even more important role to play which is recognised at Air.
AirFlow delivers an all-in-one solution with direct access to a range of online tools and services which support compliance best practice by delivering clear audit and evidence trail.
These tools and processes help ensure that affordability, vulnerability, consideration of all product options and consumer understanding are central to client discussions and that the file demonstrates a good customer outcome being delivered.
It includes Air Navigator which helps assess affordability and explore product options, as well as the fact finding tool Write Route which highlights any medical issues as well as providing a comprehensive income and expenditure analysis, and consideration of vulnerability factors to support advice best practice.
Air Sourcing provides best in class technology with the the most integrations across later life lenders to ensure all products are represented accurately in the research process. Integrations with third parties such as Knowledge Bank and Comentis also support with criteria assessment and vulnerability.
Using technology effectively increases efficiency and the work we have done with advisers on embedding tools and services into their processes suggests that making just a few simple changes can save 16 minutes in a working day which adds up to an extra 4,830 working minutes a year. That equates to around 80 hours, which is about two weeks and we estimate enough time to serve another 43 clients a year – generating significantly more income.
Good use of technology accompanied by a sensible investment in compliance services can help advisers write more business, more safely in a growing market. We must work together to break-down the silos that are preventing more customers from accessing modern later life lending products. Paradigm and Air are committed to working in collaboration to support advisers in seizing this opportunity to grow their businesses and deliver consistently good outcomes for customers.
