Later life topics under constant review

"Any discussion of rates within a later life lending context, should be tempered with the understanding that they do not drive business in our sector anyway."

Put any number of later life advisers in a room together – physical or online –and you can almost stake your mortgage on the topics that will be up for discussion.

There’s no doubting there will be a discussion on rates, LTV, criteria, lender activity and appetite, and leads. That was certainly the case at our recent ‘Breakfast with Stuart’ meeting so let’s go on a whistle-stop tour of these market elements and see where we’re at right now.

Rates

At the moment, we’re seeing the best rates beginning with a five, and even though they have (on average) been shifting down in the last couple of months, we might question just how far they can move southwards through the rest of 2023?

My own view is while eventually we’re likely to see a further shift downwards, it will not be a dramatic fall, and there is little point in suggesting to prospective clients that they would do well to hold on for an ‘inevitable’ further reduction.

Especially not in the current environment as while equity release rates are not directly governed by the Bank of England base rate, many of the needs they fulfil are. By the time you read this, the next MPC meeting will have taken place and my expectation is that rates will have been raised again, so those clients on their lenders SVR or struggling to make credit card repayments will be feeling the pinch.

When this will ultimately change, all depends on inflation and while it has recently come off its highs, I’m also of the opinion that it is going to be pretty stubborn to bring down. We’re certainly not going to see it at the 2% target the Bank has this year.

As always, any discussion of rates within a later life lending context, should be tempered with the understanding that they do not drive business in our sector anyway. Rates will be what rates will be, and if the client has a problem that can be solved by equity release, then having looked at all their options, they will choose this solution.

LTVs

Again, it’s unlikely we’ll see the LTVs we had available at the back of last summer in our sector again – not for a very long time. However, as rates have been edging down, so have LTVs been edging up, and it means we have a much better equity release environment than we did have in the immediate aftermath of the ‘Mini Budget’.

Coupled with this, is of course, house price levels. Average prices across most of the indices show ongoing monthly falls, but I suspect the real doom-mongers who suggested UK prices would fall by 20-25% through 2023 are going to be wrong.

The supply/demand situation is so heavily favoured to the latter, and with the number of properties we are building still at very low levels, I would be surprised if we were not looking back on a single-digit drop in house prices at the end of the year. Plus, of course, we must also factor in the double-digit increases we saw over the last two years to this. Most people’s equity levels will have been boosted by house price values going up since the pandemic, and a year of slight falls, won’t change this.

Lenders/providers

Will we see new providers in the later life lending market in 2023? Again, a question, constantly raised, and one which I suspect we’ll be able to answer in the affirmative by year end.

That said, there is always a big gap between starting a conversation with a potential lender/provider and launching a proposition. Many consider our market, and many more are doing so as a result of the growth we have seen in the last few years, but not all are at a point where they can provide us with a product range.

I’ve had a number of chats with prospective new entrants over the last 12 months, and some of them have slowed their approach down due to a variety of factors. For example, some are waiting to see how the Consumer Duty lands, others want to see the results of the Government’s Retirement Income Review, for others there are professional indemnity (PI) issues to confront, not least the fact there is only so much PI to go round, it has become more expensive and the excesses have also increased.

Understandably, this can sometimes cool their ardour. Having said that, for certain businesses – namely multi-billion pound pension funds – lifetime mortgages are clearly a good long-term lending fit. We already have providers who fit that bill, however new ones tend to want a big share in order to make it worth their while. For all the positivity around the growth in our sector, we are still in the £6/7bn range, and 25% of this still doesn’t necessarily give these potential participants want they need.

As the sector continues to grow we will see new lenders/providers, and therefore we need to help it grow, because by doing so we’ll get more product choice, more product innovation, downward pressure on rates, and we’ll be able to make it more attractive to our clients.

Leads

Again, there is a lot of focus on how best to generate leads. A number of firms spend big in this area and it works for them, however I’m not so sure it does for the majority of smaller firms, who make up the bulk of our sector.

My view is that you generate leads best by working locally. Working a patch five miles around where you are based can deliver on so many levels - whether it’s covering all potential introducers, networking at business groups, visiting the local community, being the local expert in your press or on the radio, etc. It can all add up to a considerable customer base right where you are.

Saturate your local market and I’m certain it will be more efficient than buying 10 leads, finding nine are useless and the other one is hundreds of miles away. Go local and go big.