Over the last two days I’ve talked about the size of the later life lending market and the knowledge gap that still exists around over-55 customers.
For the final part of this series, I want to talk about something that many advisers discuss privately but far fewer discuss publicly: Has later life lending underwriting become too focused on policy and not focused enough on proportionality?
Before I go any further, this is not lender bashing.
I have enormous respect for the lenders in our sector. They are managing long-term funding, regulatory scrutiny, property risk, longevity risk, and reputational risk in a market that is only a tiny fraction of the size of mainstream residential lending.
But because our market is relatively small, every declined case matters.
And I think we need to ask an uncomfortable question: Are some perfectly reasonable customer outcomes being lost because we are assessing theoretical risk rather than probable risk?
A GENUINE RECENT EXAMPLE
A customer wanted to use part of their release to upgrade their existing boiler.
The boiler was working perfectly well. There was no breakdown, no lack of heating or hot water and no urgent repair requirement. The customer simply wanted to improve the property by installing a newer, more efficient system as part of the planned release.
The response?
The boiler must be replaced before the loan can complete because it is considered essential works.
That decision genuinely made me stop and think.
The customer was not asking the lender to fund an emergency repair on a defective property. They were seeking to use a small part of their housing wealth to improve their home, increase efficiency, and potentially reduce future maintenance and energy costs.
So, the obvious question is: What risk is actually being mitigated by requiring the upgrade to be completed before the funds are released?
In many later life lending cases the LTV is relatively modest; the customer has substantial equity remaining; the borrowing is being used to enhance the property rather than extract maximum cash and the improvement itself could arguably leave the property in a better condition than before the application was submitted.
This is where I think our sector needs a more open conversation about proportionality.
“We risk creating unnecessary barriers for customers.”
There is an important difference between a property that is unsuitable security, and a property that a customer wishes to improve using the proceeds of the loan.
When those two situations are treated in the same way, we risk creating unnecessary barriers for customers whose objective is simply to maintain and improve the home they intend to remain in for the long term.
I completely accept that lenders must have policies, and those policies exist for good reasons.
But I also believe we should be asking whether there is room for more pragmatic, outcome-focused underwriting, particularly on lower-LTV cases where the customer is improving, not rescuing, the property.
TOO MUCH CAUTION
Another trend I hear repeatedly from advisers is: “The client has successfully held multiple residential mortgages on the property, but equity release will not lend against it.”
Now, there may be perfectly valid reasons in some cases.
But when those stories become frequent, we have to consider whether our sector is sometimes applying a level of caution that is out of step with the real-world risk profile of certain customers.
This is particularly relevant for products involving lower-LTV borrowing; Interest Reward structures; customers making voluntary or committed payments and cases where the objective is clearly to support ageing in place rather than maximise borrowing.
RISK MITIGATION
One point that I think is often overlooked is the role that Interest Reward-style mortgages can play in risk mitigation.
Customers taking these products are servicing part of the interest on an ongoing basis. While payments may not always be guaranteed indefinitely, the fact that interest is being serviced means the loan balance is growing more slowly than it would under a fully rolled-up arrangement.
That has two important implications: it helps to protect the lender’s No Negative Equity Guarantee, and it can mitigate long-term balance growth risk, particularly on lower-LTV cases where the customer has demonstrated both the willingness and the ability to make ongoing payments.
In other words, these cases are not simply about borrowing more; they are often about managing equity erosion more responsibly over time.
I’m not suggesting lenders should abandon prudent underwriting.
Far from it.
What I’m suggesting is that prudent underwriting and pragmatic underwriting are not the same thing.
In fact, they should coexist.
If lenders cannot always compete aggressively on rate or maximum LTV, perhaps one of the biggest opportunities for our sector is to compete on common-sense decision making.
That means asking:
- Can this case be made to work safely?
- What is the customer outcome if we say no?
- Are we preventing foreseeable harm, or unintentionally creating it?
- Would a more flexible approach still sit within an acceptable risk appetite?
FINDING PURPOSE
The later life lending market exists because many older customers have substantial housing wealth but limited accessible liquidity.
If our underwriting approach becomes so rigid that customers cannot use a small portion of that wealth to maintain, improve, or future-proof their home, then we have to question whether we are fully delivering on the purpose of the sector.
One of the things I love about the equity release and later life lending community is that we are generally willing to have honest conversations with each other, even when they are uncomfortable.
That collaboration is one of the strengths of our little world.
But as Ive said before, collaboration also brings responsibility.
Advisers, lenders, underwriters, networks, and product providers all have a part to play in ensuring that customers receive outcomes that are not only compliant, but also practical, proportionate, and aligned with the realities of later life.
So let me ask one final question to advisers, lenders, underwriters and funders: Has the balance between prudent risk management and pragmatic customer outcomes shifted too far towards policy-driven underwriting, particularly on lower-LTV later life lending cases where customers are improving their homes and, in some cases, actively servicing part of the interest to reduce long-term risk?
I’d genuinely welcome views from underwriters, lender representatives, compliance professionals, residential brokers, and fellow later life advisers – especially if you think I’ve got this wrong.
The best thing about our little world is that we challenge each other, support each other, and, hopefully, keep pushing the sector to serve customers better.
