Later Life Lending – Your Guide to the Market by mortgageintroducer

LATER LIFE LENDING YOUR GUIDE TO THE MARKET

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Contents

LATER LIFE LENDING YOUR GUIDE TO THE MARKET

What’s in a name?

he later life lending market has seen many evolutionary stages over the years. From a small, niche market serving clients whose retirement income left them wanting, and who had to turn to the wealth locked up in their homes as a last resort, this has shifted to become a valuable and flexible tool for clients of all kinds to get what they want out of their later chapters. And long, storied chapters they may be. The population is living longer – and stronger – than ever, and retirement is a potentially exciting stage, perhaps even allowing many to have adventures previously sidelined by work and family commitments. The idea of carrying debt into – or taking out additional lending during – retirement is no longer a taboo, or the mark of poor financial planning earlier in life. In addition to growing at a considerable rate over the years, the retirement lending market has evolved to oﬀer a diverse range of products and solutions. It makes sense, then, to stop pigeonholing it by referring to only ‘equity release’ – but I hear you ask, is a name really that big a deal? On the surface, no. Why not, for simplicity’s sake, just refer to this market by its best-known product set, a recognised phrase among borrowers and brokers alike? Fundamentally, it is a matter of branding. Equity release, itself a valuable tool that has evolved to suit borrowers’ changing needs, has suﬀered something of a poor reputation. By moving away from defining itself through this term, the market has the chance to dispel some of these misconceptions, while also representing its breadth and depth more accurately. Long live later life lending.

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4 Feature: The rise and rise of equity release Natalie Thomas considers how this market has moved from the periphery to the mainstream 10 Interview: The Key to later life lending Mortgage Introducer speaks to Will Hale about how the business is changing as the market enters its next phase 13 Standard Life Home Finance Spreading the equity release net 17 more2life Innovation holds the key to future market growth 21 Hampden & Co Why choose a retirement mortgage over equity release? 25 The UK Adviser Group How a subtle shift is leading people to trust equity release again

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THE RISE AND RISE OF EQUITY RELEASE Natalie Thomas looks at how the equity release market has moved from the periphery to the mainstream

he equity release market has made great headway over the past decade in terms of its growth, product innovation and education – all of which has lead to increased acceptance, not just from within the industry, but wider society as well. Pension shortfalls, a desire to help family members onto the property ladder, or simply to lead a better quality of life in retirement, have all added momentum to the sector’s popularity, as has years of impressive house price growth. Last year saw 76,154 customers take out new equity release plans, make use of drawdown reserves or agree extensions to existing plans – a 4% increase on 2020, according to the Equity Release Council. Meanwhile, customers borrowed £1.34bn of property wealth via equity release products from October to December 2021 – including £1.2bn via new plans and £153m via drawdowns or further advances – making Q4 2021 the busiest on record. If market conditions persist, this sector has the potential to grow further still. However, many brokers are still wary of equity release, either through a fear of getting it wrong, a lack of understanding, or a reluctance to advise on what can be an emotive subject. 4

Nevertheless, when it comes to oﬀering clients the best advice, advisers may find it increasingly diﬃcult to turn their back on equity release as the market expands and becomes increasingly relevant. UNLOCKING EQUITY

Given the changing demographics of the UK over the past half a century, it is perhaps not surprising that equity release is gaining ground. Tom Ground, managing director of retirement solutions at Standard Life, says: “With almost one in four people in the UK aged over 60 and people living longer, equity release provides an ideal solution for many homeowners grappling with the challenge of having a pension income that may not meet their retirement needs and aspirations. Property wealth in the UK is worth over £5trn, two-thirds of which is controlled by people aged over 55.” Stuart Wilson, chief executive oﬃcer of Air Group, notes that an increasing number of older consumers are discovering they need capital or a regular income during retirement. “Final salary pensions are in the rearview mirror, with the vast majority of people not having a pension pot that can suﬃciently provide for the entirety of a retirement,” he explains.

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“Then we have other requests on retirees’ income – we’ve seen this, for example, in the first-time buyer market with gifting to support family with deposits growing in popularity and necessity.” In addition to this is the cost of care, Wilson adds: “State support, individual requirements and standards of care is also coming more into focus. More people are looking at their home as a means to fund long-term care needs. “Alongside this, you have the requirement to pay first charge debt – the need to pay back interest-only loans is there for many homeowners post-COVID.

They are often able to use a lifetime mortgage to do this.” There is also the pressing need to make properties more energy eﬃcient – something which could also play a part in the market’s future growth. Ground explains: “Environmental sustainability and energy eﬃciency will increasingly play a significant role in the way lenders and funders approach product development in equity release. “With close to 60% of homes in the UK rated as Energy Performance Certificate (EPC) grade D or below, there is still work to be done to ensure the UK’s housing →

“Equity release provides an ideal solution for many homeowners grappling with the challenge of having a pension income that may not meet their retirement needs and aspirations”

→

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stock is more energy eﬃcient. This presents an opportunity for equity release as a channel for homeowners to make those changes and invest in their property, as well as reward those who already have.” However, equity release does not just need to be used as a necessity. In the immediate future, Will Hale, chief executive of Key, believes it may be used to support more discretionary spending. “Over the pandemic, people have been unable to travel and socialise, so they want to enjoy the retirement they envisaged,” he says. PRODUCT INNOVATION

As the uses for equity release evolve, so too do the products on oﬀer. Jim Boyd, chief executive oﬃcer of the Equity Release Council, says: “The industry is constantly evolving in response to demand, evidenced by the continuing development of new product features and flexibilities, which means advisers can find suitable products for a growing range of circumstances. “These include popular options such as an inheritance guarantee, which ringfences part of the property’s value as a minimum protected amount to leave behind, downsizing protection or a ‘compassionate window’, which allows a surviving spouse to repay any outstanding loan without penalty if their partner has predeceased or moved into residential care.” Matt Stirland, executive director of later life lending at Age Partnership, believes the industry has developed massively over the past five years, with increasing product flexibilities that now put equity release in line with a standard mortgage. “The biggest product development has been the ability to make repayments in order to mitigate the roll up of interest,” he says. 6

“The industry is constantly evolving in response to demand, evidenced by the continuing development of new product features and flexibilities, which means advisers can find suitable products for a growing range of circumstances” “The fact that these repayments can be made on an ad-hoc basis really puts the client in control of their finances.” Lifetime mortgages continue to be the most popular form of equity release, with drawdown being the product of choice, says Stirland. “There are lots of reasons for this, the main one being that a drawdown plan allows clients to borrow what they need right now, but with the flexibility of having some extra money held in reserve for when they need it,” he explains. “The client is only charged interest on the money that they take immediately, which makes drawdown a sensible choice for anyone who thinks they may possibly need access to more funds at a later date.” Hale says pure demographics – as well as economics – are likely to make housing equity an increasingly important source of not only retirement funding, but intergenerational support, driving the market to grow and evolve. “As this happens, I do expect to see product innovation and change as we support a wider range of people with diﬀerent needs and ambitions,” he says. “I also think that later life lending will become a far more recognised and common term as people understand the role that housing equity can play.

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Steve Wilkie executive chairman, Responsible Life

he lifetime mortgage industry is lending more than ever and would be set for mass adoption were it not for two obstacles. First, despite boasting some of the toughest consumer safeguards out there, advice is still a problem — though not in the way you might think. Many of those currently reaching retirement have planned for decades to use their housing wealth, and yet lifetime mortgages still don’t feature automatically in the advice offered by some financial advisers. A comfortable lifestyle requires retirement savings of over £1m, so legions of homeowners treat their house as their pension. It makes no sense that the one product designed to help people in this situation is missing from the conversation. Standard of living is also a subjective affair. Even the relatively well-off can feel property rich and cash poor. Thanks to tax planning advantages, there’s no point at which a potential customer becomes ‘too wealthy’ for a lifetime mortgage. We need to engage better with IFAs.

“Borrowing in retirement will become more commonplace, because while retiring debt free is obviously ideal, this is not going to be possible for everyone.” TAKING A DIFFERENT APPROACH

When it comes to how best to help potential equity release clients, there is no escaping the fact that – for all of its similarities to the mainstream mortgage market – a diﬀerent approach is needed when advising on equity release. “While all good advisers actively work to understand their customers and find the right products for their needs, those

We also need a more mature conversation with consumers. Every week, newspapers plot the fortunes of UK house prices in excruciating detail, yet house price appreciation is rarely, if ever, mentioned in articles that highlight the higher interest rates that apply to lifetime products. This is an oddity, because it’s impossible to assess the relative value of lifetime mortgages without factoring in the long-term performance of the housing market. Why aren’t projected gains in house prices a consideration too? This can have a dramatic eﬀect on customers’ ultimate financial positions. They retain 100% ownership of the property, after all. Lifetime mortgage interest rates have never been closer to those of traditional mortgages, and the long-term interplay between loan costs and inflation is improving the outlook for equity release customers. In many cases, house price inflation can outpace the roll-up of interest. The aﬀordability problems posed by traditional mortgages used to be the main driver for customers. Now it’s the new economics of lifetime mortgages that promises to make them a ubiquitous retirement solution. It’s up to providers and brokers to do a better job of explaining how these products can deliver for retirees of various means over the long-term.

who work in equity release need an added degree of empathy,” says Hale. “As part of the typical appointment, you need to deal with some tricky subjects like death, potential care needs and inheritance. These aren’t easy topics and it is those soft skills that really help.” In addition to having strong product knowledge, advisers need to be aware of the importance of involving family members in the process. Hale adds: “Whether the equity is being used for gifting or not, family members may have some expectation around inheritance or concerns around their →

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Simon Chalk managing director, LaterLivingNow

s we approach the second anniversary of the first COVID-19 lockdown, it’s worth reflecting on how the equity release market has changed in such a relatively short time. The sheer number of plans has burgeoned – despite no seismic shift in the number of providers – improving choice in terms of flexible features and driving ferocious price competition. This has helped the take-up of lifetime mortgages rise 25% from 2020 to 2021, putting the sector firmly back on the growth trend it had enjoyed unbroken, before the twin showstoppers of Brexit and COVID-19 shouldered the blame for a prolonged period of stagnation. With the prospect of rate increases leading to scrabbling for applications, and inflation levels not seen for decades, we can expect many more enquiries. Well, the hike in business is grand, but what have folk been splashing the cash on? It certainly wasn’t lifestyle things like holidays and new cars. The most discernible change is wealthier people utilising their property assets, which they may never had done just a decade ago. It occurred to me the other day, for example, that I haven’t had a single client in receipt of Pension Credit in probably the past couple of years, scotching the myth that equity release is only for the impoverished.

parents’ decision-making, so you need to help them feel comfortable.” He goes on to advise: “Over-55s are not necessarily vulnerable, but are more prone to vulnerability due to their age, so advisers also need to be experts in spotting these challenges and prepared to oﬀer tailored 8

An increasingly popular trend is taking money from the home instead of the pension pot. The flexibility of being able to draw down regular sums of ‘income’, without the associated tax – often at the higher rate – coupled with the prospect of leaving a pension pot inheritance tax free is hugely appealing to many. More so when rates – as low as we have been enjoying – are fixed for life. Another obvious shift we are seeing, is homeowners making substantial gifts of released equity to family. This is often for house-purchase deposit, home extensions and adaptations. Ground-floor wet-rooms or adding oﬃce and living space at home are all very in vogue. The third notable uptick in usage is in paying for private care at home. An overstretched and under-funded social services is pushing families to sort things privately for aged relatives, rather than moving them into ever-dwindling care home spaces. All of this rapid growth and development presents the sector with challenges, none bigger than the issue of under-skilled, under-qualified and inexperienced advisers joining it. The Society of Later Life Advisers (SOLLA) is tackling this issue head-on, having launched its increasingly popular Later Life Lending Advice Standard, which presently is the highest level an equity release adviser can attain. We can only hope that, in the absence of regulatory intervention, more advisers will see the sense in pushing themselves further to best serve clients in their later years, particularly those in vulnerable circumstances.

support to ensure all customers can achieve good outcomes.” Wilson believes advisers need a more holistic understanding of all other financial aspects impacting on their older customers – whether that is around pension options, tax and benefits or care funding.

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“By being able to take all that into account, they are eﬀectively building the robustness of their advice and their firm, because these facts of life for older customers do not exist in separate vacuums, they all impact each other” he says. “An adviser who is advising in a silo risks doing significant damage if they aren’t willing or able to take these other aspects into account.” REINVENTING ITSELF

For all of the progress the sector has made, there can at times seem no escaping its past, with advisers still confronted by outdated perceptions. “Modern later life lending products are flexible and built to support clients now and as they age,” says Hale. “But all too often, the headlines focus on products that haven’t been sold for years and do not oﬀer the same options. “This is incredibly frustrating, as we do find that some people’s concerns are based on misconceptions or historic issues.” Wilson agrees that the continued presence of misconceptions is a factor that is holding the equity release market back. He says: “How we communicate the product, what it is, what the responsibilities are when taking out a product, and – vitally – what the product is not asking of customers, is still a significant issue in our sector. “That has been the case for many years, and we have much improved in communicating this to consumers. However, when it comes to equity release we are often still fighting a perception of a product that existed over 30 years ago, not one that exists now. That remains an ongoing challenge, but education and understanding is far better now.” It is often not just the image of equity release that needs reprogramming, but also

a client’s thought processes around utilising their property. “Another key challenge for the sector is changing people’s mindsets when it comes to the wealth tied up in their property,” says Ground. “A home is often the single largest financial asset a person has, but when it comes to their retirement planning, it is often overlooked. “We are, however, seeing a growing number of financial advice firms evaluating equity release when considering their client’s holistic approach to the retirement lifestyle they aspire to have, and this is a trend we expect to increase.” While regulation can be another frustration, it is hoped that one day this may lead to a more conjoined market. “While retirement interest-only mortgages, later life mortgages and equity release serve a similar customer demographic, mortgage advisers can’t advise on equity release,” says Hale. “In order to do this, you need to take the CeRER exam, which covers topics such as care and inheritance. “A level playing field which sees customers able to access all products when they speak to a specialist adviser would seem to make more sense.” To this end, Hale would like to see more advisers actively encouraged to engage in the market. “There is a huge amount of opportunity, and we need to gear up to support people as they age and their needs change,” he concludes. “We need more intermediaries qualified to advise on equity release, but we also need to encourage all firms across the wealth and mortgage markets to establish referral relationships with trusted partners who can oﬀer specialist advice in this area.” 

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THE KEY TO LATER LIFE LENDING Mortgage Introducer speaks to Will Hale, CEO of Key LaterLife Finance, about how the business is changing as the market enters its next phase

here has been a transition taking place over the past few years. To an extent, equity release was previously one of the few shows in town if people wanted to borrow in, or indeed into retirement. However, this has started to change, with the later life lending and broker markets now brimming with options. In 2022, the market is – pardon the pun – much more grown up, and later life lending is a wider proposition altogether. EVOLUTION

One of the mainstays of the equity release market has been Key. As the biggest adviser in the equity release market, Key has been at the heart of revolutionising later life lending and moving the sector from the fringes to the mainstream. Now the journey is continuing, with Key evolving its brand and becoming Key Laterlife Finance as of March. But what’s behind the 10

change? We spoke to Will Hale, CEO of Key Laterlife Finance, to find out. “It’s very much an evolution rather than a revolution,” says Hale. “The move to Key Laterlife Finance is in line with the way we have seen the market transform in recent years.” That transformation has been clear to see, with a significant increase in customers, product options and business in the later life lending space. This is a trend that is anticipated to continue in 2022 as the sector further expands. As Hale says: “Modern equity release products now look very much like mainstream mortgage products. We’ve also seen a number of new later life products come to the market, most notably Retirement Interest Only (RIO). That has been coupled with the mainstream lenders targeting the later life Will Hale

Interview

demographic. What we wanted was a brand that reflected that evolution of the market.” PIGEONHOLING

One of the other reasons Hale points to behind the change is a pigeonholing of equity release firms. He believes that such businesses are very good at talking to borrowers who are already considering equity release products, but are not as sucessful at targeting those who are as yet “out of market.” Over the years, equity release itself has also had negative connotations. Luckily, this stigma has been largely removed, not least by the work of Key and other outfits, but Hale admits that some people are just “turned oﬀ by the term equity release.” “We want to bring these people into the market,” he says. “It’s about showing them what they can achieve in later life through lending solutions. “We need to make them aware that the barriers that they thought existed are no longer there, and that there are options for many customers in the space.” KEY PLAYER

Over the past 20 years, Key has been at the forefront of the charge when it comes to changing the perception of equity release. The business hopes that other members of the market will follow suit in pushing a broader view of the sector. Hale says: “This rebrand is a positive for the industry. We are taking ourselves out of what can be perceived as a narrow silo and widening the appeal to a broader audience. “The more businesses that follow suit will only enhance the perception of the market. Whilst we are taking the first steps, we do hope that others will follow.”

SERVICES

But how will these changes impact the offering from Key? “From day one – not materially,” says Hale. “We already offer these products to customers. It shouldn’t be a well-kept secret and the change should highlight this.” Indeed, Key already offers a mortgage desk for those borrowers looking for RIOs, mainstream lender products, and a triage service which guides people to the best options for their circumstances. Additionally, Key ensures that all options are considered, not just product options, but downsizing too, for instance. “The change of brand really fits in with what we are already offering,” Hale adds. ADVICE

Holistic advice. As Hale freely admits, this phrase is “much used,” but it is finally something he believes the later life market is getting its head around. “When I think of holistic advice, I think of it as later life lending, and I think it’s an appropriate aspiration for the whole of the market,” he explains. “By investing in sourcing systems and other tools, it’s a vision of mine to have all our advisers able to oﬀer advice across the whole suite of products.” There’s a lot of complexities to that, but should Key – and indeed the market – get its head around it, the benefit for consumers will be huge. With the triage stage already starting down the route towards a more holistic process for consumers, it is clear that the Key Latelife Finance rebrand is just the latest step in that journey. With a history of setting the pace in the sector, it is likely that others will follow in Key’s footsteps again. As they say, good advice is Key. 

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Putting you and your clients in control At Standard Life Home Finance we are conﬁdent you can ﬁnd the right solution for your clients. Our market-leading product range, Horizon, comes with a range of modern lending features as standard: • Partial repayments from day one • Fixed ERCs for just eight years • Guaranteed inheritance protection • Downsizing protection from day one • Permanent ERC exemptions Register with us now to give your clients even more options in their retirement.

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Telephone calls may be monitored or recorded for training purposes. Standard Life Home Finance is a trading name of more2life Limited. Registered in England No 5390268. Registered Oﬃce: Baines House, 4 Midgery Court, Fulwood, Preston PR2 9ZH. more2life Limited is authorised and regulated by the Financial Conduct Authority. more2life Ltd uses the Standard Life brand under licence from Standard Life Assets and Employee Services Limited. The Standard Life name and logo are registered trade marks of Standard Life Assets and Employee Services Limited SLHF002 (02/22).

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SPREADING THE EQUITY RELEASE NET According to the Office for National Statistics (ONS), the median salary for someone in full time employment is Kay Westgarth approximately £31,000, and the Pensions head of sales, and Lifetime Savings Association (PLSA) Standard Life Home Finance suggests a single person needs an annual income of £20,800 in order to have a aving worked in financial ‘moderate’ retirement. services for a number of years, Even those with a rudimentary grasp I suspect I am like many of maths are likely to find these figures Mortgage Introducer readers, in concerning, so it is no wonder that many that I feel I am fairly financially savvy. people are either worried or have moved I’ve been saving into a pension pension planning into the ‘too hard’ box. religiously, am on the way to paying off While there are some people who – due my mortgage, and am even building up a to their personal circumstances – will find little bit of a nest egg. making any preparation for retirement a Yes, all those boxes are carefully ticked. step too far, the vast majority of people But why, then, do I have a slight concern can tackle this challenge with the hope of about whether I am doing enough to making a difference. prepare for later life? As an industry, we need to encourage Possibly because, working in later life them to not only take full advantage lending, I know the challenges some of opportunities such as automatic people face. But it is also because very enrolment and pensions tax relief, but also few of us feel that to consider all their we are entirely on options. top of retirement With the “According to the ONS, the planning. Not demise of defined median salary for someone entirely surprising, contribution in full time employment is given that you are pensions, a myopic being asked to save approximately £31,000 and the view of retirement for an undefined is no longer Pensions and Lifetime Savings planning period over which going to work. Association suggests a single you need to meet Clients also undefined costs person needs an annual income need to consider which will increase whether they can of £20,800 for a ‘moderate’ based on a rate of work longer, access retirement” inflation that is different benefits, currently unknown. make better →

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Standard Life Home Finance

use of their ISA allowances, and use their property as part of their later life financial provision. Almost two-thirds (32%) of homeowners consider their mortgage to be an investment in the future, and 57% of homeowners are interested in accessing money from their property as they age, according to figures in the Equity Release Council’s 2022 Annual report. Our clients are starting to consider a more holistic approach to retirement, so as an industry, we need to step up and support them. Equity release is not right for everyone, but neither are retirement interest-only mortgages or later life mortgages. Everyone has diﬀerent needs, but as an industry, we need to start the conversation and actively plant the idea that their home can be their castle as well as making a contribution to their standard of living in retirement. Two-fifths (40%) of homeowners say it is becoming more acceptable to have a mortgage in retirement, and the product options are growing to meet this trend. In the equity release market alone, there are more than 700 diﬀerent products, with a wide range of flexibilities and features which are designed to support customer choice. Having entered the market in late 2021, Standard Life Home Finance was delighted to guarantee all customers that they had a right to move, and if they moved to a property that was not within underwriting criteria, they would not be charged an early redemption fee. It is these types of features and options that are going to mean more people are comfortable accessing the value tied up in their homes. Looking to the future, this arguably becomes even more relevant as we know 14

“Clients also need to consider whether they can work longer, access diﬀerent benefits, make better use of their ISA allowances and use their property as part of their later life financial provision. Almost two-thirds (32%) of homeowners consider their mortgage to be an investment in the future, and 57% of homeowners are interested in accessing money from their property as they age, according to figures in the Equity Release Council’s 2022 Annual report” first-time buyers who are not supported by the ‘bank of mum and dad’ are getting older. While Kirstie Alsop was quick to point out that by being frugal you could get on the property ladder sooner rather than later, I suspect when she suggested cancelling Netflix, she wasn’t factoring pension contributions in either. Supporting clients as they consider how best to meet their pension’s objectives presents a huge opportunity for independent financial advisers (IFAs) as well as mortgage brokers and equity release specialists. There is an entirely diﬀerent set of clients who are currently crying out for our support. As an industry, we need to educate ourselves and put our best foot forward. 

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INNOVATION HOLDS THE KEY TO FUTURE MARKET GROWTH Stuart Wilson corporate marketing director, more2life

rom 28 March this year, all lifetime mortgage (LTM) customers will be guaranteed the right to make penalty-free repayments towards their outstanding loans, as the Equity Release Council adds this fifth product safeguard to its standards. It’s being introduced to mark the 30th anniversary of the launch of the standards, which were first brought in by the council’s predecessor, Safe Home Income Plans (SHIP). To those who work in this market and follow the trends of its growth closely, the addition of this product safeguard might seem like a ‘so what?’ moment. After all, many of the 700-plus LTM product options currently available already come with this flexibility included. Nevertheless, the cementing of this guarantee into the council’s standards marks a significant milestone in the evolution of the market. It also underlines just how far we have come during the past 30 years, as equity release has moved from being a niche, rigid and highly specialised form of later life borrowing,

into being a mainstream, flexible lending option. Much of the innovation in this market in terms of product design and flexibility has come about during the past seven years or so. As lending volumes in this market really took oﬀ in the middle of the last decade, the surge in consumer demand brought with it a new type of customer – a little younger, a little more financially aware, and a lot more demanding of the sort of borrowing flexibility they were used to with their residential mortgage lending. → During this period, we saw the steady but relentless rise of drawdown, which now accounts for 62% of all plans available and 74% of all plans taken out in 2021, according to the Key Market Monitor for 2021. Increasing numbers of customers sought out products that could give them the most flexible borrowing options to see them through what can often be a complex and challenging point in their lives as they transition from full-time work into and through retirement. We also saw the introduction of new modern lending features, including: fixed early repayment charges (ERCs); downsizing protection; flexible capital repayment options; and ERC exemptions on certain life events. Many of these developments reflected the market’s shift towards meeting →

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more2life

the needs of a new type of equity release customer – people who recognised the long-term financial commitment of the lending they were taking out, but who in turn demanded greater flexibility in how they managed that borrowing through retirement. Downsizing protection is a good example here, a feature designed to resolve a growing number of customer complaints about ERCs being charged in situations where they had no way of porting their loan to a new property because of lending criteria restrictions. In a similar vein, fixed ERCs have quickly become the norm in a market once dominated by gilt-based repayment charges, as more and more customers – and their advisers – sought out products that gave greater clarity and certainty over future repayment penalties. So, what more can this market do, what further innovation is coming over the horizon to help propel the growth of lifetime mortgages onwards beyond £5bn and even £10bn of annual borrowing? With around a third (32%) of homeowners seeing their mortgage as an investment in their future, and a similar number saying that taking out a mortgage in later life can improve their lifestyles, according to the Equity Release Council, the market will need to continue developing, adapting and flexing product options to meet the demands of an increasingly savvy consumer. There is likely to be more focus on helping customers transition from preto post-retirement borrowing, with a significant number of older mortgage borrowers – both interest-only and capital and interest – still facing uncertainty over exactly how and when they will service, never mind fully repay their residential mortgage debt. 18

It’s also not just in terms of new borrowing that innovation can play a part in further modernising this industry. Lenders need to continually adapt their own back oﬃce systems and processes to keep up with changing demand. Last year, further borrowing by existing customers rose sharply – particularly further advances, which were up 25% across the market, according to the council’s new business data. At more2life, we saw a 30% increase in further advance requests. Further lending often involves lots of manual processing, compared with new borrowing, which is often automated via online adviser portals. This can be slow and clunky – and with the likelihood of further lending requests increasing still further over the coming months as the cost of living rises bite hard, especially amongst the older population who are often on fixed incomes, lenders in turn will need to look to innovate in a part of the market that has tended to be rather small and insignificant in the past. At more2life, we have risen to this challenge already, introducing a marketleading ‘self-serve’ further advance process on our fastpath adviser portal, to automate and significantly speed up the timeframe for getting clients the further borrowing they need. Other lenders will no doubt develop their own technology solutions to this growing issue. Innovation has played a key part in the rapid growth of this market in the past, and is critical to its future success. Growing numbers of people aged 55plus in this country will seek to unlock the wealth in their properties as a way of funding their later life, and the market will need to rise to this challenge by providing more choice, flexibility and transparency in product design. 

Guide to Later Life – brought to you by Mortgage Introducer

Plan specifications Innovative plans for your clients

We arm you and your clients with the broadest range of lifetime mortgages and features on the market for added flexibility and protection now and in the future. Our plans come with features such as fixed ERCs, partial repayments, inheritance protection, downsizing protection, and ERC exemptions at no extra cost where your client is eligible. Plans

Flexi Choice LTVs

5–54%

Extras

Fee free options

Partial repayments

Fixed ERCs

ERC exemption on death/ admission into long-term care of first borrower Downsizing protection Inheritance protection

Up to 10% of total cash advance in each 12 month period from loan completion date, from day 1

Capital Choice 7.5–55%

Cashback available, fee free & valuation fee free

Tailored

Maximum Choice

Prime

21.5–57%

25–59.28%

25.5–58%

Fee free & valuation fee free

Fee free & valuation fee free Up to 10% of initial loan amount in each 12 month period from loan completion date, from day 1

(enhanced LTVs available)

Cashback available, valuation fee free

Up to 10% of initial loan amount in each 12 month period from loan completion date, from day 1

Up to 12% of initial loan amount advance in each 12 month period from loan completion date, from day 1

Yes

Yes, lump sum plans only

Yes

For current rates, please log in or register on fastpath,

more2life.co.uk/our-lifetime-mortgages

This is intended for intermediaries only and has not been approved for customer use.

more2life Ltd is authorised and regulated by the Financial Conduct Authority. Registered in England No 5390268. Registered office: Baines House, 4 Midgery Court, Fulwood, Preston, Lancashire PR2 9ZH. CM154.2 (03/22). © more2life Ltd 2022

Yes

We all have goals. Ours is to help your clients reach theirs.

At Hampden & Co, we assess affordability based on a client’s entire financial position to make quick, considered decisions. If this sounds like the type of tailored service that you and your clients would benefit from, please contact Banking Director, Duncan Buchanan. 0131 297 0149 duncan.buchanan@hampdenandco.com

hampdenandco.com Hampden & Co plc Registered office 9 Charlotte Square, Edinburgh EH2 4DR Registered in Scotland No SC386922 Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority

Hampden & Co

WHY CHOOSE A RETIREMENT MORTGAGE OVER EQUITY RELEASE? Duncan Buchanan banking director, Hampden & Co

or more than three decades, scientists at Finland’s University of Jyväskylä have been carrying out tests on people in their late 70s. Every time they check a new cohort, they note significant advances – findings that are backed up by research elsewhere in the world. Men and women aged 75 to 80 now have significantly stronger muscle strength, reaction speed, reasoning abilities and working memory than previous generations. Most 75-year-olds today are much ‘younger’ than their grandparents were at the same age. What has this got to do with retirement mortgages? Well, quite a lot actually. In the UK, older high net worth clients are often living a full life and are less inclined to downsize from their family home. In terms of their finances, they may have a strong investment portfolio or the sort of final salary pension scheme that their children or grandchildren could only dream of. In many cases, they may still be

working – not because they need to, but because they enjoy it. Meanwhile, as property price inflation continues to outstrip salary increases, they see younger members of their family struggling to get a foot on the property ladder, and they want to help. That could mean cashing in on some of their investments. But if their wealth manager is doing their job properly, the return on those investments should be something they’re reluctant to abandon, particularly when capital gains tax comes into play. So, attention may then turn to what is often their biggest asset – their home – and the option of equity release. →

“Men and women aged 75 to 80 now have significantly stronger muscle strength, reaction speed, reasoning abilities and working memory than previous generations. Most 75-year-olds today are much ‘younger’ than their grandparents were at the same age”

Guide to Later Life – brought to you by Mortgage Introducer

Hampden & Co

We know that with general traditional equity financial planning “For clients in the fortunate release is attractive and practical position of approaching later for those who need conversations with life borrowing through choice to raise money for the wider family. their retirement, Incidentally, rather than necessity, it would perhaps through a when I’ve arranged be difficult to suggest that pension shortfall. retirement traditional equity release is But clearly it can mortgages for come with risks and a good option to pursue. clients, I’ve often caveats. Obviously, worked closely A much more attractive the interest rolls with their wealth up, and you end up alternative is an interest-only manager. If good paying interest on financial planning retirement mortgage” interest, which can is all about helping prove significant as people get to where it eats into the equity of your property. they want to be while protecting their Indeed, if someone taking out equity wealth, this type of mortgage fits in well. release in their 60s lives into their 90s, A number of the clients that have there may be nothing left to hand on to approached me about interest-only the next generation when their life comes mortgages had also initially been knocked to a close. back by mainstream lenders. For clients in the fortunate position of For instance, they may have taken out approaching later life borrowing through an interest-only mortgage several years choice rather than necessity, it would be ago and are then instructed to repay the difficult to suggest that traditional equity balance at the term’s end. release is a good option to pursue. In these When they ask for a mortgage circumstances, a much more attractive extension, they’re told that they’re too old alternative is an interest-only retirement – even though they may still be working mortgage, where the client retains the and have a good income. certainty of protecting their equity. Larger lenders will probably say that Of course, with this product they will they need these cut-off points due to initially pay a higher rate of interest the sheer volume of mortgages they’re than is charged on an equity release processing, but people fall through the mortgage, but they will pay less interest gaps, which is where smaller, more in the long-term. Furthermore, for many flexible lenders can help. of our clients, the interest they pay on In our case, clients who are still working a retirement mortgage is lower than in later life can take out an interest-only the interest they’re earning on their mortgage. And if they’ve retired, they investment portfolio, making it a far better can take out a retirement mortgage. The choice than cashing those investments in. rates are the same, and there’s no cliffThat frees them up to gift money edge when it comes to the number of to children or grandchildren, and the candles on their birthday cake. After all, reassurance of knowing the equity that the research shows that 80-year-olds are is left in their home helps significantly sharper now than ever.  22

Guide to Later Life – brought to you by Mortgage Introducer

Retirement Interest-Only mortgage from Hampden & Co Our Retirement Interest-Only mortgage is designed to help clients that have a need to manage their estate planning or who simply want to realise a lump sum without disturbing other assets and investments.

Loans available

Loans of £200,000 to £2 million. Smaller or larger amounts will be considered.

Loan to value

The typical maximum LTV is 50%.

Rate options

Fixed or variable.

Minimum age

Available to personal clients aged 55 years or over.

Loan term

There is no pre-defined loan term*.

Loan repayment

The mortgage is repaid on the sale of the property, or when the last surviving borrower passes away or moves into long-term care. The amount borrowed will be the final amount due, unless it has reduced following any lump sum repayments.

Interest payments

Paid monthly. The interest payment amount can decrease if the client makes any lump sum payments.

Calculating affordability

Assessed on a client’s ability to afford the monthly interest payments based on their actual or projected income and expenditure both going into and in retirement.

*To calculate the annual percentage rate of charge (APRC) and issue a European Standardised Information Sheet (ESIS), we will assume the loan will mature when the youngest borrower reaches 85 years of age, unless instructed otherwise. All borrowing is subject to status and is available to persons of 55 or over. Interest to be paid monthly via a servicing account at Hampden & Co. Your home may be repossessed if you do not keep up repayments on a mortgage.

Hampden & Co plc Registered office 9 Charlotte Square, Edinburgh EH2 4DR Registered in Scotland No SC386922 Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

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The UK Adviser Group

r k 4

ed by dviser h the

HOW A SUBTLE SHIFT IS LEADING PEOPLE TO TRUST EQUITY RELEASE AGAIN Maxim Cohen CEO, The UK Adviser Group

quity release has had a bad reputation, and has been seen as almost a dirty word for quite some time. This dates back to the financial crisis, when many equity release products were missold and there were plenty of dubious practices taking place. However, in recent years, the Equity Release Council (ERC) has been taking great strides in making equity release acceptable, trusted and desirable again. And that’s a good thing, because it can be hugely beneficial, especially for those who are looking to help their children, grandchildren or even greatgrandchildren onto the housing ladder. This sector is now increasingly becoming known as the ‘later life lending’ sector, to ensure it isn’t associated with the sometimes less than glorious past of equity release lending. This is helping to build more trust and transparency again, and enabling advisers

to get consumers to consider equity release once more. MISINFORMATION

As an adviser active in the later life lending sector, the biggest hurdle I have come across is misinformation. For many exploring later life lending options, equity release is still viewed with suspicion, seen as a dirty word. Unfortunately, products in the past, prior to the financial crisis, were sold →

“In recent years, the Equity Release Council has been taking great strides in making equity release acceptable, trusted and desirable again. And that’s a good thing, because it can be hugely beneficial, especially for those who are looking to help their children, grandchildren or even great-grandchildren onto the housing ladder”

Guide to Later Life – brought to you by Mortgage Introducer

The UK Adviser Group

by brokers But we still rather than need to do more, “We still need to do more, advisers – as to educate, to to educate, to bring the level of a result, they bring the level advisers up, and to ensure the did not have of advisers up, the customers’ and to ensure the misselling is never an issue again” best interests misselling is never at heart, and an issue again. products were being sold to customers This will take time, but we are that were not fit for purpose. getting there, and better training and The damage this legacy has done has qualifications for advisers, and more been huge, and only now – 15 years support, is helping us to achieve that. after the financial crisis began – is the We need to get to the point where reputation of this sector starting to be equity release is no longer seen as a fully healed. dirty word, and the subtle shift towards There is still an issue, though – while this sector being known as later life the products now are very diﬀerent, some lending instead is playing a major part in clients still don’t trust them, because of that. But if we’re to get many more people the historical connotations associated trusting this all-important market – which with equity release products. is only going to grow in importance as Rebranding them as later life lending the UK population continues to age products helps, but not entirely. – education, education, education is The most frustrating aspect of all this vitally important. is that these products could put clients in As advisers, we all have a crucial role a better position – but the lack of trust in to play in this. We can help improve the products is hampering this. and enhance the reputation of the sector by being responsible, diligent and CHANGING THE TUNE well-informed. How do we change this perception? That way, later life lending won’t Well, that work is being done, and is suﬀer the same lack of trust that equity proving successful. release has. 

We can help improve and enhance the reputation of the sector by being responsible, diligent and well-informed

Guide to Later Life – brought to you by Mortgage Introducer

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