"Andrea Rozario, chief corporate officer at Bower, discusses the shoots of positivity which can be found in the current mortgage market despite climbing interest rates and stubborn inflation."
Is this the end of Boris Johnson? How many times have people pondered this question, I wonder? The teflon don of British politics appears to be heading for a time on the sidelines but I for one will not be betting against blondie making a bombastic return in the very near future. Right now, the Conservative government, and the country more broadly, is facing problems and battles on a number of fronts, so I’m sure a few Tory generals will be more than happy to see the back of their once dear leader. At least for now.
With the partygate soap opera hopefully now winding down, serious matters should once again take centre stage - namely climbing interest rates and stubborn inflation. As soon as the pandemic ceased to be front page news, it seems that the world was tossed head first into another global pandemic but one this time that attacks our wallets.
Every industry and market is feeling the squeeze - but you could argue none more so than the mortgage trade. The spike in interest rates caused in large part by Liz Truss’ 49 day premiership, and more specifically her and Kwasi’s now notorious ‘mini budget’, is still hammering the industry and our clients more than ten months on. Methinks this blonde bombshell, however, won’t be back on the scene any time soon. So, what are we in the industry and those looking for help with their finances supposed to do? Well, there are some shoots of positivity and hope to be found amongst this mess.
Within the equity release industry, the rate rise has had a negative impact - there’s no denying that. With our products demanding no immediate repayment plan like normal residential mortgages, interest rates were already higher on our products. And now they have had to climb as well. Obviously, this is not what customers want but delving into why our clients are accessing their equity tells an interesting story.
According to recent data, more than half (54%) of equity released in Q1 of 2023 was used to manage debt. The largest chunk of this debt was mortgages that clients looked to pay off with their equity. Smart thinking - use your house to pay for your house.
So, despite the woes of the market at this current moment, our clients are being intelligent and level-headed. They know that the cash injection products like the lifetime mortgage can deliver can be used to clear debts like mortgages and release some of the immediate financial pressure many millions are currently experiencing. Very few products out there can deliver this freedom and it’s heartening to know that the biggest bulk of equity release clients are using our products for this reason.
But should we be surprised? I don’t think so. Equity release is obviously a specialist product for a certain demographic - our average client is a shade over 70 - and so it’s hardly a shock that our customers know what’s what. These are people who have built up a lot of wisdom over the years and have lived through many a recession in their time - so why wouldn’t they be responsible and smart with their finances?
However, I feel this still doesn’t translate into the mainstream conversation about retirement finance. Regardless of the evidence, there is an underlying sense in the wider population that debt in retirement is a mortal sin. Even if said debt is taken on to clear more immediate worries like mortgages and bills.
To take equity release to new heights, we must look to tackle this somewhat ironic mindset. Of course, lifetime mortgages need to be approached carefully and only entered into when clients are fully ready - but knowledge is power. If we are to help people secure the retirement they deserve, giving them all the facts helps everyone.
For the future, I am certain we can achieve this. Despite times being tough right now, I have seen this market grow healthily over the last few years and I am certain this growth will return. New lenders will join and newer, better products will be launched. More safeguards will be implemented and the industry at large will become healthy once more. For now, however, we must simply batten down the hatches. We have seen off tougher times and foes and this will be no different. The lifetime mortgage is here to stay - the clue’s in the name.
