Lifetime mortgages have evolved significantly over the last few years. The industry has risen to the challenge, developing innovative new product features which ensure they deliver for a wider range of potential borrowers.
Features like Interest Reward allow borrowers more control over the eventual cost through rate discounts if they commit to making monthly payments. The introduction of a wide variety of early repayment charge (ERC) terms, even including zero ERC options, mean there is far more flexibility.
At more2life we aren’t standing still either, with the likes of our ProView system, which brings together underwriting expertise and market-leading technology to ensure brokers and their clients get accurate property evaluations and lending decisions within hours, rather than days or weeks.
As the products have become more sophisticated, so too have the uses of them. And many people across the industry are now pointing towards the recent increase in equity release activity as having been driven, at least in part, by homeowners looking to guard against a sizeable Inheritance Tax (IHT) bill.
AN EARLY INHERITANCE
Rising property values mean that many older homeowners are now sitting on significant amounts of equity. That has played a big part in the interest we see in lifetime mortgages, as these homeowners turn to advisers for help in enjoying some of that housing wealth while they are still alive, for example by providing financial support to loved ones or supplementing their pension savings.
These products have the added benefit of potentially limiting the Inheritance Tax liability down the line, by cutting the size of the estate.
Downsizing might do the same job – if the right property, in the right location, at the right price is available – but it comes with disruption and emotional cost. Lifetime mortgages allow clients to stay put, stay comfortable, while providing support to loved ones and reducing their tax liability to boot.
And advisers are at the forefront of helping clients enjoy the benefits of their housing wealth in the here and now, while mitigating the future tax burden.
A GROWING CONCERN
A driver in this trend is the fact IHT is becoming a more pressing concern for greater numbers of families.
Official data shows UK IHT receipts for April to June of this year rose yet again to £3.1 billion, and they’re only likely to rise further from here. Freezing the IHT thresholds until 2028, while property and pension values continue to grow, means thousands of ‘middle Britain’ estates are now exposed.
And from April 2027, the game changes again: undrawn DC pensions and death benefits will count towards IHT. For some, this could push the effective tax rate on inherited pensions as high as 67%.
The OBR suggests 30,000 more estates will be caught in the IHT net in the next three years. Over 150,000 will face a bigger bill than expected.
Inheritance is always an emotional subject, but the prospect of losing a greater chunk of their estate to the taxman will push more homeowners towards advisers for help. You should therefore be ready for such customer demand.
IT’S TIME TO PLAN
We know there are many mortgage advisers who have not really touched on the later life lending market, focusing on mainstream options instead. That cannot continue however, particularly given the impending shortfall in retirement and wider economic and societal challenges.
So now is the time to decide whether you are going to advise on these products directly, or partner with a specialist. Burying your head in the sand isn’t an option.
Given the regulatory situation, many may understandably choose to partner. If that’s the right, immediate reaction and solution, then grasp that reality and secure that relationship as soon as possible. By doing so, it means firms can keep delivering great client outcomes, without stepping beyond their remit.
But this is just as much about opportunity as it is compliance. Advisers and clients alike are refocusing, and now is the time to be proactive, engaging in conversation with other businesses that can support your clients’ needs.
WORKING TOGETHER
Collaboration between mortgage advisers, tax advisers and later life specialists matters. Each brings different expertise to the table. Together, they deliver joined-up advice that helps clients use their wealth in life, and pass it on more effectively after.
It’s about helping clients shape the legacy they want to leave. That’s powerful. And it’s personal.
TIME TO LEAD THE CONVERSATION
This is a moment for advisers to step in. To educate, to plan, and to act.
Clients are worried about IHT. They’re looking for guidance. And property wealth could be the answer they didn’t know they had.
Lifetime mortgages have the features, and the firepower to play a lead role in tax-efficient estate planning. But only if they’re used well, and that’s where advisers come in.
Don’t wait for clients to bring it up. Start the conversation. Build the partnerships. Deliver the advice. You have the power to make a huge difference to not just this generation of homeowners, but generations to come.
