"We are moving away from an equity release/lifetime mortgage-based ‘branding’ and one that subsumes that sector into the much larger later life lending market."
Now that the new year is here, my thoughts turn to what big themes might emerge over the course of the next 12 months.
One point that occurs to me is how the primary ‘strapline’ of our sector is changing and, how in fact, we are moving away from an equity release/lifetime mortgage-based ‘branding’ and one that subsumes that sector into the much larger later life lending market.
It’s something we’ve talked a lot about in our recent ‘Breakfast with Stuart’ meetings as specialist equity release advisers weigh up whether that tag is appropriate any more.
This is an internal debate of sorts which has been increasingly relevant in light of the Consumer Duty rules and the responsibilities placed upon advisers to review, and provide advice on, the full range of product options not just the one they ‘specialise’ in.
In that sense, it’s my view that advisers can of course choose to stay as equity release specialists, but it’s much harder for them to justify their covering all other product bases, particularly when the vast majority of later life lending is not carried out in this space, and therefore there is also a very strong business case for being a later life adviser in today’s market.
To my mind, it would be the same as a residential mortgage adviser choosing only to work, and offer, five-year fixes to their client base; they would struggle to make a living because of the vast array of other options available and the fact that, for a large number of clients, a five-year fix is not what they want and/or appropriate for them.
The other point to make here is the ‘pool’ that advisers want to fish in, in order to make the most of the advice opportunity, and indeed, in terms of the level of business they want to write, and the income they want to earn.
Even with falls on the same quarter in 2022, the latest later life lending figures for Q2 2023 from UK Finance show this point in spades, in terms of how later life lending is now so much more than just equity release/lifetime mortgages.
In Q2 loans advanced to older borrowers totalled £4.3bn, while lifetime mortgage loans totalled £550m and RIO loans totalled £28m. In other words, the later life lending pie is much, much bigger than that available to advisers who just specialise in ‘equity release’.
And the other point to make here is these figures are severely down on what we might consider to be a ‘normal’ year, with the anticipation that we will move back up towards the levels of previous years and this - and potentially next year - are, in a sense, outliers.
For instance, Q2 2023 later life lending was 38.5% down on Q2 2022, for lifetime mortgages the figure was 43.8% down, and RIOs were 52.3% down.
My view, and I think we are already starting to see this, is that - certainly as rates stabilise at lower levels - demand is improving, activity levels are starting to move up, affordability becomes easier to achieve, which creates greater interest in the options available, and something of a virtuous circle is created.
At the same time, as I’ve pointed out before, the drivers pushing later life lending demand forward remain, and indeed you might well argue, have been further cemented for many homeowners in recent times as they seek to deal with all kinds of financial responsibilities, whether that is simply keeping up with the cost of living, finding a solution for a pension shortfall, wanting to help friends and family with their home purchases, etc.
In that sense, I expect those three distinct product sectors - residential later life lending, lifetime mortgages and RIOs - to all grow, but it still needs pointing out, that it is the former which is by far the biggest mortgage advice pie to take a slice of, and it is that sector which is likely to see the largest growth and therefore the biggest opportunity for advisers. If you are just a specialist in equity release you are not going to be able to access that at all.
Finally, I would normally have written that this is about servicing the lending needs of all over-55s, but of course, with the growth in hybrid products and with more launches along the lines of L&G Home Finance’s recent option - which is available for homeowners over the age of 50 - this is already a much broader customer demographic to market to. One that is only going to grow in the years to come.
In that sense, broadening those advice horizons to everything later life lending seems to be the right play on so many levels. Of course, it doesn’t mean giving up the equity release specialism, it just means adding to it and ensuring you can service the much larger group of potential customers this covers now, and in the future.