Innovation in the lifetime mortgage market has created real value for customers – there’s no excuse to ignore it.
When a UK borrower reaches 55, data shows that more than nine in 10 will either roll onto a product transfer with their existing lender or remortgage to another mainstream product albeit with a new one.
That stat shocked me. Can we honestly say that a mainstream mortgage is the best option for nearly every borrower either approaching or already in retirement?
For some – perhaps even most – maybe it is. But surely a specialist later life lending product would be a better solution for more than one in 10 older borrowers?
Especially if they have existing debts, want to financially support loved ones or, maybe most importantly, need to top up their pension income.
THE FOURTH PILLAR
Given the way the FCA has been talking about equity release and its potential role in retirement planning recently, we believe that it shares the same view.
Earlier this month, the FCA’s Emad Aladhal called later life lending a potential ‘fourth pillar’ in funding retirement alongside state, workplace and private pensions. At the moment, this isn’t the case. And that’s because most advisers are not discussing this as an option with their clients.
This matters because of what’s at stake. As a country, we are facing a retirement crisis, with millions of households at risk of missing out on even a moderate standard of living when they exit the workplace.
A recent report from Fairer Finance revealed that 3.7 million homeowners aged 55-79 in this position. For these borrowers, drawing on their biggest asset – their home – could have a huge impact of their standard of living in retirement.
PROPERTY WEALTH
The regulator’s message is clear: relying only on traditional pension solutions alone will not be enough for most people.
And that means tapping into the estimated £3.7trn of property wealth currently in the hands of the over-55s in this country.
As we said in our recent white paper, The Home Belongs In The Plan, this represents a change in advisers’ obligations to customers – irrespective of whether you are a mainstream mortgage adviser or an IFA/wealth manager. Of that there is no doubt. But it also represents a major commercial opportunity for advisers that is so far largely going untapped.
Advisers who develop a structured later life lending capability, delivered directly or through specialist referral partners, not only produce better, Consumer duty-aligned outcomes for their clients; they also embed significant value in their own businesses.
RIGHT ADVICE
This is not about steering clients towards a specific product solution. As I said above, sometimes a mainstream 2- or 5-year fixed rate is absolutely the right advice. But you will never know that for sure unless you explore all of the available options.
To be clear, no borrowing strategy or product type is inherently ‘better’ than another. The right solution depends entirely on the customer’s individual circumstances.
But the key to achieving a good outcome is ensuring that a comprehensive conversation takes place in which all options are considered.
I agree therefore with the FCA that the industry needs to take the ‘lead’ in seizing this opportunity. In the post-Consumer Duty landscape, there is no excuse for not considering all of the options available in the market.
We also need to think big and bold in evolving products, advice and referral models and fully embracing technology.
LACK OF ADVICE
However, I would also like to see the regulator clearly articulate what it expects of advisers and not simply rely on Consumer Duty principles.
If that means being prescriptive around how consideration of all options for older borrowers is evidenced and the documentation expected around how/why certain products have been discounted, then so be it. S
imilarly, I would favour mandating circumstances where a referral to a trusted specialist should be facilitated in order to achieve the most suitable outcome if an adviser’s scope of proposition or qualifications could be a barrier to customers accessing certain options.
An argument I often hear is that it is a lack of advice capacity is holding back the market.
However, whilst there is a debate to be had around qualifications, there are c. 6,000 individuals with the permissions to advise of equity release – so plenty of capacity to support a far larger market.
Nobody is asking mainstream mortgage advisers or IFAs / wealth managers to advise on these products if they don’t feel they are able.
If you can’t or don’t want to, that’s fine. But ignoring specialist later life lending products that may be the most suitable option for your customers is not acceptable: instead refer to an expert who can provide the advice.
Taking a broader perspective could mean the difference between your client simply existing or having a decent standard of living in retirement. And that is priceless.
