The equity release market is capturing only a small share of later life lending despite product innovation and rising demand, according to platform Air.
Air said that, while recent growth in equity release lending has been encouraging, the sector remains under-represented within the wider later life lending market.
Data from the Equity Release Council shows total equity release lending rose by 11% last year to £2.57 billion. Research conducted with advisers also found that 80% expect total lending to continue to grow this year and anticipate an increase in new customers.
However, Air highlighted that lending through lifetime mortgages accounts for just 8% of the total later life lending market, which it values at around £25 billion. It argues that this is despite ongoing innovation in product design that has made equity release relevant to a growing number of over-55s homeowners.
The platform also pointed to subdued growth in customer numbers, with new equity release customers increasing by less than 1% last year. Air said this indicates a lack of awareness among both consumers and advisers who do not specialise in later life lending.
Air is urging mortgage, pension and wealth advisers to broaden their understanding of later life lending options, either by advising on these products directly or by establishing referral arrangements with specialist advisers.
Will Hale, chief executive of Key Advice & Air, said: “The sector is still performing at a fraction of its potential despite the very welcome growth in total lending last year and the prospect of more to come.
“Innovation in lifetime mortgages means they are very much relevant to a growing number of over-55s homeowners and their needs. However it is clear the lack of awareness among customers and advisers beyond later life lending specialists means they are not being offered lifetime mortgages.
“Given customer needs, the £25 billion value of the later life lending market should be higher and the share taken by lifetime mortgages should be higher too.
“The products are there but mortgage, pension and wealth advisers need to look beyond their silos and offer holistic advice – using referral relationships where appropriate to fill gaps in the scope of the advice and or products that they offer.”
Air said potential growth areas include borrowers reaching the end of five-year fixed rate mortgage deals this year and facing higher monthly repayments, homeowners looking to gift funds to family members, including first-time buyers, and those seeking to supplement retirement income.
THE BUSINESS CASE
Air’s report, The home belongs in the plan – Why later life lending is essential for client centred advice, examines the commercial considerations for advisers entering the later life market.
The report estimates that launching later life advice can cost adviser firms around £21,700 in qualifications, training, compliance and marketing, requiring around eight cases a year to break even.
For firms choosing to refer clients to specialists, set-up costs are estimated at around £4,500, with break-even achievable with around three cases a year.
