"In the future we should expect to see partnerships between different lenders with one funding the roll-up, and one funding the serviceable interest element"
Speaking at today’s FSE Cardiff, Mirfin pointed to the growth in equity release lending, new plans and the average loan size, and said much of this was due to interest-only mortgage customers.
He said: “On average, over the next four to five years, there are 40,000 interest-only loan maturities each year. They are under pressure because large numbers are unable to borrow because they won’t meet affordability criteria. A major usage for equity release is to repay the mortgage – in 2011 17% of our customers were using the money to repay an outstanding mortgage and this has now gone up to 21%.”
Mirfin urged advisers to engage with mortgage clients on interest-only products, who could potentially be suitable for an equity release product when their term runs out. He also urged advisers to refer to specialists if they don't advise.
He also outlined the new innovation in the equity release space – notably hybrid products which combine both a roll-up and serviceable interest element – which might be suitable for these customers.
Mirfin continued: “The problem with interest-only borrowers is getting the loan high enough for them to pay off the mortgage. How can we get a higher LTV? Here is where we are close to products which offer serviceable interest across the entire life of the loan. In the future we should expect to see partnerships between different lenders with one funding the roll-up, and one funding the serviceable interest element, but for the customer this is just one loan. So we could have a 70 year-old borrowing 50% but only servicing 10% of it.”
Mirfin agreed that one of the biggest barriers for the equity release market was getting high-street/mainstream lenders to market, enabling the sector to spread the risk to different lenders.
He also said the market is just at the start of three waves of interest-only customers coming to the end of their terms and not having a repayment vehicle in place to pay off the capital.
“This year is the start of the first big wave,” he said. “The second wave will come in seven to eight years’ time, and the third in about 2030. However, the problem for the first wave is that they have little time to solve this.”
