"A major reason why equity release hasn’t continued its exponential rise is the fact that many more later life customers are now going down the mainstream route"
The recent lending figures from the Equity Release Council have been seized upon by some commentators as evidence that the sector is losing some of its allure, and that predictions of similar levels of growth over the long-term are somehow way off mark.
Those figures revealed that lending during 2019 had hit £3.92bn in 2019, just slightly down from the £3.94bn lent during the previous calendar year. Hardly a disaster in anyone’s book but perhaps a sign that the fast-paced growth of the last few years did eventually have to plateau.
There are however some other fundamental reasons behind 2019 being a ‘year of consolidation’ – as the Council described it – and, from a later life lending/advice perspective, they’re actually rather positive. One suspects that a major reason why equity release hasn’t continued its exponential rise is the fact that many more later life customers are now going down the mainstream route when it comes to securing mortgages in retirement.
Lending to those in later life has truly entered the mainstream over the past couple of years with many lenders expanding their offerings and lending to customers who are older than before. We recently spoke to Family Building Society who will lend to someone aged 90 over a five-year term, based on their income – indeed, if later life customers can service the interest on their debt, why wouldn’t they go for a more mainstream option over an equity release product?
We’re not even including retirement interest-only (RIO) mortgages within this later life lending growth either because, quite frankly, the way these products have been handled from a both a regulatory and affordability standpoint, has been nothing short of a disaster. What should have been a relevant and strong part of the later life lending product scene has actually been mishandled from the start, and it’s no wonder that advisers are incredibly wary of them and they haven’t taken off as many anticipated.
Moneyfacts recently announced that the number of RIO products on offer had doubled in the last 12 months, up from 38 to 74, but we’re afraid a marginal increase in product choice means absolutely nothing, and what we should be looking at is the number of RIO mortgages which have been sold over the last year. We suspect it will be nothing to write home about, and until the fundamental underlying issues with RIO can be addressed, that will remain the case.
However, when it comes to the growth of mortgage options for the over-55s, then we have to say we’ve seen some major changes. Whether this is because the residential/mainstream ‘vanilla’ space is so crowded and competitive, or lenders are simply reacting to the customer demographic and need, the good news is that we have far more options available to our later life clients now, and the reality of this is that equity release lending is not the only game in town, and therefore there will be an impact.
We’ve perhaps already seen this with these recent Council figures, and it would not surprise us to see equity release grow, but certainly not at the levels it has in recent years. Other disincentives are also likely to be kicking in, for instance, the broker fees being charged are often substantial and way above mainstream levels, plus of course the products themselves, particularly the level of the ERCs, can also mean that remortgaging away from them is prohibitive.
The equity release sector as a whole may need to introduce a number of changes in these areas, specifically around the cost to borrowers of advice and the flexibility of criteria, if they want to see continued levels of growth. There must be an acknowledgement that equity release is competing with more mainstream mortgage options now and the attractiveness and appropriateness of the products may need to change if it’s to hold its position in the market.
For advisers, and their older borrower clients however the news is still very positive because this is one client base that is only likely to grow, and the options they have are far greater than they have ever been. Becoming active in this sector is a must, and there are plenty of routes to market and supportive businesses like ourselves, who can help you make the most of it.