"One of the primary benefits for focusing on later life lending can be financial, and advisers shouldn’t shy away from this, with the higher procuration fees associated with these products."
The UK mortgage market experienced something of a slowdown in the first quarter of 2024, with the value of gross mortgage advances dropping by 2.6% to £51.6 billion compared to the previous quarter, according to the Bank of England’s Mortgage Lenders and Administrators Statistics.
That was the lowest level since the lockdown days of the second quarter of 2020, and while there is some considerable optimism about what might be coming in the future, particularly with the August cut to Bank Base Rate and potential drops in mortgage product rates, I’m not certain anyone is 100% sure about how that might translate into business levels, certainly in the mortgage market.
Indeed, while we must await the statistics for Q2 – due to be published next month - anecdotally at least, advisers who I’ve talked to and recent articles I’ve read suggest it might have been a tougher three-month period than Q1 this year. This, due to a combination of higher rates, tougher affordability and the General Election campaign, for example, meant many potential borrowers were adopting a wait and see approach.
This subdued activity is of course challenging for mortgage advisers, but at the same time, it might well sign, seal and deliver the need for a change in approach, or indeed a pivot towards those areas of the market where business growth is possible, but also where customer demographics are pointing in the future.
Consumer Duty certainly provides this opportunity for greater interest and activity in the later life lending sector and this shift not only addresses the changing dynamics of the mortgage market but also opens up avenues for higher procuration fees and greater income stability.
One of the primary benefits for focusing on later life lending can be financial, and advisers shouldn’t shy away from this, with the higher procuration fees associated with these products.
Equity release and RIO products typically offer more lucrative commissions compared to traditional mortgage products. This is partly due to the complex nature of these products and the comprehensive advice required to navigate them, which justifies the higher fees, as well as the very different longevity reflecting a lifetime solution rather than an expectation of ongoing cycles of reviews at two-five-year intervals
Moreover, later life lending advice does offer the prospect of advisers being able to extend the value creation they can secure from their existing customer base. The adviser can, of course, keep on advising clients as they continue to have mainstream needs, but as they perhaps move towards a more later life lending need, it means they can hang onto that customer rather than see them move elsewhere.
Advisers who can therefore establish themselves as being able to provide the broadest, holistic range of advice across the widest array of customer needs – whether their stage of life – are not just setting themselves up in the here and now, but also in the future, as they can provide the right solution irrespective of the client’s age.
It also means they are building a loyal client base that should return for additional services and referrals, further enhancing their financial stability.
The potential for later life lending is underscored by these demographic trends. The number of homeowners taking mortgages into retirement is growing, with a sizeable portion of the population reaching retirement age with outstanding mortgage balances. Advisers who can effectively address this market need will find a wealth of opportunities to expand their business and increase their income.
And even if the advice element is not something firms want to offer themselves, there is a clear referral pathway available to them, that ensures clients get the products and the advice they need, and income can be generated.
This is a key message for us at Air because we understand that despite the movement we are seeing towards greater later life lending demand, some firms/advisers will feel – perhaps just initially – that they are not in the right position to be able to support these customers through to completion.
The point to address here is this shouldn’t be a hindrance towards securing the client a positive outcome, but what it does require is a level of knowledge about what is available, referral tools and signposting, plus a commitment to have a ‘Comprehensive Conversation’ with every single client on later life lending options, even if they are some years from it being a consideration.
As the mortgage market continues to evolve, advisers must adapt to current trends and client needs. The recent decline in mortgage lending activity presents a clear signal that diversification is essential.
By focusing on later life lending, advisers can not only navigate the current market challenges but also position themselves for future growth. This strategic shift requires a commitment to ongoing education and training in later life products, ensuring advisers can provide the best possible advice and solutions to their clients. Air is a business which focuses on providing the best education and tools to be able to access the market, grow business and benefit from higher income levels.
By embracing this opportunity, advisers can enhance their financial stability and provide valuable services to an increasingly important demographic. The shift towards later life lending is not just a response to current market conditions but a forward-thinking strategy that positions advisers for long-term success in an evolving financial landscape.
