The later life lending sector is set for another strong year of growth and innovation.
What do we mean by later life lending?
For me, this covers all residential mortgage products marketed to over 55s, including retirement interest-only (RIO) mortgages and also equity release plans, such as all lifetime mortgages.
This represents a market that is already in excess of £25bn per annum (£4bn of which is lifetime mortgages).
There are a number of developments which will be behind the growth of the sector in 2019.
Changing consumer attitudes and needs
The consumer is looking for solutions to meet a growing list of needs: a better solution than their current mortgage offer (mortgage prisoners), those interest-only borrowers coming to the end of term with their existing lender; those who need/want to release equity to fund retirement, or spend on family members or carry out home improvements.
The big change will be meeting the needs of Middle Britain, who consider their home as part of their total asset wealth; pensions, savings and property.
It is this target audience which represents the real opportunities for product providers and advisers alike. It’s where the real growth will come from in the next five to seven years.
Product innovation
To satisfy Middle Britain’s ever-changing needs, product providers will need to innovate.
The introduction of RIO mortgages has been welcomed by the industry but lending to someone beyond the age of 100 on an interest-only basis should not be exclusive to RIOs.
Lenders need to be bolder and look hard at the consumer needs and aspirations and develop their products accordingly.
It is not about high LTVs, it is about flexible options and processes. Key to this is underwriting.
Lenders need to take a pragmatic view of someone’s pensionable income at the point of application, recognising the changes which are likely to occur e.g. annual indexation, reduced income after the tax-free cash has been taken, what will happen on death where the application is made by joint or multiple applicants.
Clients can only do this if they have thought through the underwriting criteria in detail, thus making it easier for advisers to understand what their criteria is.
Technology will help drive these changes and improve efficiencies.
In the past three years there has been much talk about hybrid lifetime or residential mortgages. This seems to have gone quiet of late, but for those lenders who are brave enough to explore the options they will tap into a rich vein of consumer demand.
Distribution
Advice is key in this sector. If clients are in their late 50s and make the wrong decision then time is not on their side to unravel things, particularly considering many applicants will be entering into a mortgage which might run for 30 or even 40 years.
