Key Equity Release has welcomed the FCA’s later life mortgage market study, arguing that the biggest gains for older borrowers will come from breaking down the advice and distribution silos that limit access to modern later life lending products.
In its response to the FCA’s terms of reference for the Later Life Mortgage Market Study, which closed on 17 April, the adviser said the regulator’s focus on the provision and distribution of lifetime and retirement interest-only mortgages was a positive step.
However, it said the more significant issue is the extent to which mainstream mortgage advisers, wealth managers and independent financial advisers still fail to consider the full range of later life borrowing options for customers aged over 55.
Key said this was restricting access to products that can be used to refinance existing mortgage debt, pay for home improvements, supplement retirement income and support family members. It added that awareness of these options remains low despite the scale of housing wealth held by older homeowners.
The firm pointed to Savills research showing that the over-60s hold more than £3.84 trillion in housing equity. Against that, it said annual lifetime mortgage advances remain below £3 billion.
Key also estimates that combined new mortgage lending, remortgages and product transfers involving borrowers aged over 55 could total about £60 billion a year. It argued that lifetime mortgages are still too often treated by advisers as a last resort, or are not properly understood, with the result that many customers who could benefit may instead face poorer outcomes later in life.
The adviser said the equity release market already has the capacity to support greater demand, noting that annual lending exceeded £6 billion in 2022.
It also argued that product development has changed the nature of the market. Modern lifetime mortgages now allow borrowers to pay all, some or none of the interest, and in some cases to make regular capital repayments. Key said this gives customers greater flexibility over borrowing costs while retaining security of tenure.
Some products also offer limited, or no, early repayment charges. Key said that means they should not automatically be viewed as a mortgage for life, particularly if remortgage opportunities emerge in future should rates fall.
The firm said there was still room for further product innovation, but argued that progress would depend on changes in distribution and continued development of specialist advice models to ensure all suitable options are considered and that commercial incentives do not work against customer interests.
Will Hale, chief executive of Key Equity Release, said: “The direction of travel being pursued by the regulator is clear and all advisers must act now in order to not be left behind. Moving later life lending from a niche to the norm requires opening up distribution.
“All advisers need to adopt a more holistic perspective and consider referrals to trusted specialists in situations where their own qualifications or scope of advice limit their options. For both mainstream mortgage advisers and wealth managers/IFAs, having this broader field of vision will see better outcomes achieved for many more customers in later life.
“Similarly, banks, building societies, life companies and those operating targeted support models should make it their responsibility to ensure customers are aware of the later life lending options that sit beyond their own product ranges and signpost to appropriate advice.
“The regulator should be applauded for the leadership and vision it has shown in identifying the greater role later life lending can play in supporting the needs and wants of older customers. The terms of reference for the Market Study along with the parallel focus on holistic advice evidence that the FCA is committed to deliver material change.
“It is time for the industry to step-up and to take action now to improve awareness and access to the full range of options available. This is an exciting, moment in time opportunity for stakeholders to come together and collaborate to ensure the later life lending sector is positioned to realise its considerable potential.”
