The FCA appears committed to addressing the distribution silos holding back access to later life lending solutions, including products such as modern lifetime mortgages, and in so doing support good outcomes for more older customers, Key Equity Release, the UK’s leading equity release adviser, says.
Its response to the FCA’s Terms of Reference for the Later Life Mortgage Market Study, which closed to consultation on April 17th, welcomes the focus on the ‘the provision and distribution of lifetime and RIO mortgages’ and the benefits they bring.
Key believes breaking down the structural and behavioural barriers which regularly see mainstream mortgage advisers, wealth managers and IFAs fail to appropriately consider all later life lending options for customers over the age of 55, is the answer to unlocking better outcomes for customers.
Older homeowners using equity release are benefiting from the ability to refinance existing mortgage debt, fund home improvements, boost retirement income and help out family, but awareness remains low. Current annual advances via lifetime mortgages are below £3 billion, while recent research from Savills points to over 60s owning more than £3.84 trillion of housing equity.
Furthermore, Key’s own estimates suggest that combined new mortgage lending, re-mortgages and product transfers involving those over 55 could total c£60 bn per annum. Lifetime mortgages are still regarded by too many advisers as a ‘last resort’, with others having little awareness at all of the options now available, meaning that currently these products are only being used by a small percentage of those customers for whom they could support good outcomes, leaving many more potentially facing poorer outcomes in later life.
Key stresses that today’s equity release market is well positioned to meet the growing needs of over-55s – the market achieved annual lending of more than £6 billion in 2022 indicating that funding capacity from existing product providers is more than adequate to support a substantially larger market.
Recent product innovation now means that modern lifetime mortgages enable customers to pay all, some or none of the interest – and even to make regular capital repayments as well – so allowing cost of borrowing to be managed in a flexible way while also providing the security of the right to reside.
Many products also offer limited and even no early redemption charges – as a consequence they do not have to be a mortgage for life, something that is perhaps particularly important in today’s environment given that re-mortgage opportunities may emerge for equity release customers should rates fall in the future.
Key acknowledges that there is room for further product innovation in the later life lending sector, but this requires distribution silos to be addressed, alongside the need for specialist advice models to continue to evolve to ensure that all options are considered and that commercial drivers don’t negatively impact customer outcomes. However, it argues, modern lifetime mortgages, when well advised, already deliver excellent value.
It is right that the functioning of the ‘as is’ market for lifetime mortgages and RIOs is scrutinised under the Market Study. However, the larger opportunity to improve outcomes lies with the vast number of over 55s who remain in mainstream mortgage products, potentially struggling with repayments and making lifestyle compromises as a consequence, when alternative options are available.
Similarly, vast numbers of customers are sitting on unencumbered equity that could be put to use to help them live a more comfortable or fulfilling retirement or released to support children or grandchildren get onto or move-up the property ladder.
Will Hale, CEO of Key Equity Release, said: “The direction of travel being pursued by the regulator is clear, and all advisers must act now in order to not be left behind. Moving later-life lending from a niche to the norm requires opening up distribution.
All advisers need to adopt a more holistic perspective and consider referrals to trusted specialists in situations where their own qualifications or scope of advice limit their options. For both mainstream mortgage advisers and wealth managers/IFAs, having this broader field of vision will see better outcomes achieved for many more customers in later life.
Similarly, banks, building societies, life companies and those operating targeted support models should make it their responsibility to ensure customers are aware of the later life lending options that sit beyond their own product ranges and signpost to appropriate advice.
The regulator should be applauded for the leadership and vision it has shown in identifying the greater role later life lending can play in supporting the needs and wants of older customers. The terms of reference for the Market Study along with the parallel focus on holistic advice evidence that the FCA is committed to deliver material change.
It is time for the industry to step-up and to take action now to improve awareness and access to the full range of options available. This is an exciting moment in time opportunity for stakeholders to come together and collaborate to ensure the later life lending sector is positioned to realise its considerable potential.”
