"When the market returns to more normal trading conditions, competition between equity release lenders is likely to continue."
We spoke to Stuart Wilson, corporate marketing director at more2life, about why the later life lending market will continue to flourish and how advisers can play a crucial role in helping over-55s fund their retirement.
FR: The later life lending sector has seen instrumental changes over the past 12 months – how do you see the market evolving over the next year?
We see the market evolving steadily over 2020. While the ongoing global crisis may lead to a slight dip in activity compared to 2019, I am confident that the later life lending market will continue to flourish with the cooperation of lenders and advisers. The industry is having to adapt to the “new normal” of working from home and limiting face to face contact, but through the use of innovative technology we can help older homeowners access the equity they need at the moment. For example, the Equity Release Council (ERC) has provided guidance on using telephone and video facilities to make sure borrowers are getting access to appropriate legal advice as part of the equity release journey. By working together like this, the industry can make sure it is still able to meet the needs of older homeowners.
When the market returns to more normal trading conditions, competition between equity release lenders is likely to continue. Last year, we saw a variety of lenders slash their rates and in January this year rates in the equity release market reached a new record low when more2life’s Flexi Super Light interest rate was cut to just 2.67% MER.
There’s also been a greater focus on drawdown plans within the market over the last year, with Key’s latest Market Monitor showing that drawdown products accounted for 73% of all plans taken out in 2019. As more customers look to release smaller sums of cash more regularly, it will be key that lenders continue to develop drawdown products to meet this growing demand.
FR: What are the biggest issues facing over-55s in the current economic environment, and what should advisers be aware of when dealing with clients?
One of the biggest issues now facing the UK’s older demographic is how they are going to fund their retirement – especially if their pension pot has been impacted by the economic effects of Covid-19. With many people worried about their retirement income over the last few weeks, pension pots have shrunk further causing increased concern. Advisers will have a crucial role to play here, highlighting the role that property wealth can play in helping these individuals supplement their retirement income.
Vulnerability continues to be another important issue across the entire financial services sector, and it is paramount that advisers are aware of this when dealing with clients. However, our research showed that 75% of advisers said there was a need for greater education and additional resources to provide practical guidance on how to recognise and deal with vulnerable clients. As an industry, we need to work together to give advisers the skills and confidence to recognise signs of vulnerability, and to communicate with clients and manage their requirements effectively.
FR: Equity release is on the cusp of a breakthrough into mainstream later life financial planning, how can we grow this market and take it to the next level?
Adviser education and support will be key if the equity release market is to continue growing. Encouraging more advisers to include equity release as part of their financial planning conversations with clients is vital. For example, online support from lenders and trade bodies, such as webinars and information packs, will go a long way in educating the adviser community and ensuring they have the information they need to advise confidently on equity release or refer clients.
In addition, consumer education will need to be top of the agenda for the industry if it is to continue flourishing. Almost half (47%) of the advisers polled as part of the AKG report we sponsored said that when they mentioned equity release to their clients they were receptive as to how this product might help them with their circumstances. This is an encouraging statistic and I hope to see more advisers over the next year speaking to their clients about equity release and what it can offer them.
FR: How can equity release be better integrated into retirement planning, and what benefits would this bring?
Equity release can be better integrated into retirement planning by advisers speaking to clients in their 40s and 50s and encouraging them to think about how housing equity might play a part in their retirement funding. By speaking with clients at this early stage, individuals will be in a better position to understand all their options.
Technology could also go a long way in improving the integration of equity release into retirement planning. Tools that would allow homeowners to view their property wealth alongside other assets could help this demographic make more informed financial choices around retirement that will benefit them, their families and wider society.
FR: How do you see the relationship between pensions and later life products evolving?
Over the coming years, it will become even more important that advisers talk to their clients about how all their assets can work holistically together. While many people will view their pension as the primary source of income in retirement, for most of us, our house is likely to be our single biggest asset and has the potential to make a huge difference helping to fund retirement. It is crucial for advisers to discuss financial products that draw on housing wealth during their conversations with clients so that they are fully aware of how these can work as part of a wider retirement plan.
This, in turn, should help fuel greater product innovation across the market. The introduction of more products that offer integrated solutions, such as fixed-term income plans, will be greatly welcomed by advisers and customers alike as the push for holistic advice continues. Later life lending solutions have increasingly become more bespoke for retirees over the past couple of years, especially since the introduction of pension freedoms, and we are likely to see this continue as consumer demand for more tailored plans grows.
FR: If you could see one headline about later life lending in 2020, what would it be?
“Record number of families benefit from equity release in 2020.”