It is an exciting time in the later life lending market with 2025 off to a positive start as rates have softened and customer confidence increased.
Further encouragement for the growth prospects of the sector comes from the continued innovation by lenders in creating products and features aligned to the evolving needs of a wider range of customers and so increasing the relevance of later life lending to a broader distribution audience.
Later life lending is becoming a normalised part of financial planning for most over 50s customers. Drivers of demand remain strong with an ageing population welcoming the more flexible solutions on offer to help them better manage mortgage debt into later life and then to use their property equity to fund a better retirement and/or to pass wealth on to the younger generations.
Regulators have set out what is needed from advisers operating in the market and Consumer Duty obligations have emphasised the need to deliver good customer outcomes through ensuring that clients are informed of all their options. Comprehensive conversations around what a customer may afford to repay to optimise cost of borrowing and/or how health/lifestyle factors may positively influence the rate or LTV available are crucial if consistently good outcomes are to be achieved.
Product innovation, not only in the lifetime mortgage sector but also in terms of retirement interest-only (RIO) mortgages, term interest-only (TIO) mortgages and long-term fixed rate products, has created a complex landscape for mainstream mortgage advisers and later life lending specialists alike. However, help is on hand through the sourcing and research tools available and with the professional development resources and support provided by lenders and through networks and mortgage clubs. Creating better outcomes for customers requires advisers across the market to engage with these services and also to put in place referral arrangements with trusted specialists if not wanting to expand their scope of proposition but still ensuring that all options are considered.
The changing later life lending customer
Traditional equity release customers remain an important part of the market – typically they are in their 70s or 80s, have repaid all or most of their mortgage debt, and are looking to boost retirement income and improve their lifestyle by accessing their accumulated property wealth. They may want to make financial gifts to children and grandchildren.
The growing customer group for later life lending and the major opportunity for mortgage advisers are homeowners in their 50s and early 60s who face the inevitability of carrying significant mortgage debt into retirement. In the fourth quarter (Q4) of 2021, just under one in three (31%) of mortgages ran past pension age. By Q4 2022, the proportion had risen to 38%, and at the end of 2023 it was 42%. This opportunity is no longer a “niche”.
As a market we need to accept that most customers will never fully repay a mortgage. Given the new product options available in the later-life lending sector this is not a bad thing. Home ownership remains a sensible aspiration from a financial planning perspective and efforts to increase flexibility around LTI ratios and extended mortgage terms in order to help people onto and up the property ladder should be applauded. However, advice needs to become more sophisticated and the ecosystem work in a less siloed way to ensure this approach does not impact customer outcomes in later life.
Embrace the innovation
Products have evolved to meet the needs of older customers with the development of more RIO mortgages, TIO mortgages and long-term fixed rate products.
Lifetime mortgage lenders are offering higher LTVs, shorter (and fixed) early redemption charges and increased flexibility around regular payment options.
These lifetime mortgages which allow some or all of the interest to be served are designed to help mitigate the impact of compound interest and evolve with borrowers as they move into retirement. These products offer the option to eventually transition into a full roll-up product with a fixed interest rate for life and certainty of tenure once any mandatory payment terms have been met. Products also exist which incentivise customers to manage their cost of borrowing by reducing the interest rate while regular repayments are being made.
Embedding new processes
In order to be fit for the future of the later life lending market all advisers need to look at all options for customers in their 50s and early 60s. That should include comparing residential mortgages with lifetime mortgages that offer repayment features.
Whether you are a mainstream mortgage adviser or an equity release specialist, it is no longer good enough post-Consumer Duty to point to your scope of service as a reason why certain product options are not considered.
Part of the answer is making better use of technology. Air’s Navigator tool is one example of a triage approach which, by starting with an analysis of income and expenditure, it is possible to establish which products across the full range of options a customer may be eligible for.
Lenders such as LiveMore also offer excellent product type comparison tools that support a similar triage process and can be the starting point before commencing whole-of-market research/sourcing in a particular area. If products are highlighted which sit outside your scope of service then you must have referral mechanisms in place in order that customers may still access the product that best fits their needs and circumstances.
The aim has to be to remove the lottery of what outcome a customer receives depending on the adviser they initially engage with. Too many mainstream mortgage advisers are unaware of the opportunities created by innovation in modern lifetime mortgages and too many equity release specialists are still not looking at affordability in the way that is required to support good outcomes – either to fully explore RIOs, TIOs and other mainstream products or when it comes to embracing the options around servicing interest on lifetime mortgages. We all need to strive to do better.
The future of the later life lending sector is bright and will be driven by a diverse distribution audience encompassing not only specialist and generalist advisers in the mortgage space but also IFAs and wealth managers who are starting to recognise the importance of considering property wealth as part of retirement planning. Having comprehensive conversations with customers and adapting fact find and triage processes will ensure that advisers are fit for the future, so delivering consistently good outcomes for customers and unlocking the commercial potential that lies in this market.
