"Equity release products are irreversible and come with complex implications, so prioritising a client's financial security and future needs should always be at the forefront of any recommendation."
Equity release has long been a mainstay product in the housing market. It offers homeowners over the age of 55 access to some of the wealth tied up in their property, which can give some financial flexibility. However, I want to highlight that equity release isn't the only solution. We are in an ever-evolving market, and the advice we give needs to evolve alongside this. Equity release has its merits, but should not be the first option that advisers go to for customers in later life.
While equity release offers valuable benefits, it's crucial to explore alternatives in the later life lending sphere before presenting it to customers. A responsible broker's role is to ensure customers understand the full picture, be it potential implications or where they may find a better fit by thinking outside the box.
Tailoring solutions to the individual’s needs
Every individual's circumstances are unique, and a blanket recommendation of an equity release product can be detrimental. Understanding the customer's goals, risk tolerance, and future plans is paramount. This involves thoroughly evaluating the customer's income, expenditure, future financial needs, and potential inheritance.
Remember, equity release products are irreversible and come with complex implications, so prioritising a client's financial security and future needs should always be at the forefront of any recommendation.
Opting for a standard repayment, retirement interest-only (RIO), or a term interest-only (TIO) mortgage might be a more sustainable option if affordable, allowing the customer to retain ownership and avoid potential debt burdens later. In addition to these products, some lenders have begun offering payment term lifetime mortgages (PTLM).
Types of products that should be considered before equity release
So, what alternatives to equity release do I recommend offering before even considering traditional equity release products?
Term interest-only mortgage (TIO)
A TIO is a type of mortgage in which the borrower only pays the interest on the product for a specific term. During this period, the borrower does not pay down the capital amount, only the interest. Like standard interest-only mortgages, this typically results in lower monthly payments.
These products can only be offered if the customer has a repayment vehicle available to pay off the capital amount of the loan when the interest-only term ends, and can show they can afford the monthly interest payments. These products are usually available to customers aged 50 and over, and the terms can last for up to 30 years.
For those who know they have money coming in to cover the capital amount, this could be the ideal solution.
Retirement interest-only mortgage (RIO)
RIOs are essentially the same as TIOs, however, the capital loan amount is paid upon death, or entry into full-time care. This amount is paid once the property in question is sold. As it is a form of mainstream mortgaging, standard mortgage affordability checks apply.
For those 55 and over, lenders take into account different kinds of income sources, which include but are not limited to: state and employment pension payments, personal pension payments, and annuity payments. These loans typically have an LTV of up to 75%.
Payment term lifetime mortgage (PTLM)
PLTMs are a newer later life mortgage product, claimed to ‘bridge the gap’ between standard mortgage products and interest-only products. These products are available to borrowers aged 50 and above.
It works by giving the borrower a cash sum, on which the interest, and in some cases - the capital - is payable. There is a set term in which these monthly repayments must be made (either a term chosen by the customer, or until they turn 75 - whichever comes first). The amount owed is paid off following the sale of the property upon death, or a move into long-term care. Any money left over after paying off the amount owed, post-sale, goes to any beneficiaries. The main benefit of the PTLM is to give the customer access to a higher LTV at outset.
Standard residential mortgages
Finally (and this may seem out of left field), if the customer's financial profile fits, why not offer them a standard mortgage? Age restrictions aren’t as readily enforced with traditional lending anymore, and if the borrower can meet the monthly repayments and interest, not only do they retain ownership of their home, they’re lowering the capital amount for when it comes time to sell the house. While unorthodox, it could work for some.
Building trust and expertise
By offering a wider range of solutions, brokers can build trust and demonstrate a genuine commitment to clients' wellbeing. Taking this more holistic approach to advice should help to not only inform clients, but empower them too. At the end of the day, we’re all human, with unique circumstances and personalised, long-term goals.
Here’s how you can grow and tailor your offerings:
Develop bespoke expertise: Continuously learn about alternative later life lending options, including regional variations and eligibility criteria. Stay informed about government initiatives and policy changes affecting older adults.
Partner with specialists: Collaborate with estate agents, financial advisers, and legal professionals to offer customers comprehensive support beyond financial products.
Tailored communication: Clearly explain the pros and cons of each option, avoiding jargon as much as possible and ensuring clients fully understand the implications. Actively listen to their concerns and tailor your recommendations accordingly.
The future of later life lending
As the demographics shift, the demand for tailored later life lending solutions will undoubtedly grow. By expanding your toolkit beyond equity release and embracing a customer-centric approach, mortgage brokers can position themselves as trusted advisers in this dynamic market.
Search through all available options, do your research, and don’t be afraid to offer unorthodox products. If it works, it works.
Remember, it's not just about offering products - it's about empowering customers to achieve their financial goals with confidence and security.
