"When it comes to the later life lending market, it’s been obvious for some time that an evolution of what we had for many years was not going to cut it. "
‘Evolution not revolution’ is a phrase you’ll hear a lot when it comes to the changing needs of homeowner borrowers, particularly in relation to mainstream residential product offerings, where if we’re completely honest we’ve not seen a significant amount of change for a considerable amount of time.
Yes, we can all probably point to some notable landmarks, perhaps current account mortgages or the more recent 100% LTV innovation which focused on underwriting based on rental payments in order to help more tenants become first-time buyers.
However, when it comes to the later life lending market, it’s been obvious for some time that an evolution of what we had for many years was not going to cut it.
That’s in terms of customer requirements, but also what the regulator has asked of lifetime mortgage providers in the past and most recently via a ‘Dear CEO’ letter, for example, from a Consumer Duty point of view, and certainly in terms of the way the regulator views the market and specifically those mortgage borrowers/homeowners in their 50s.
The regulator also called for a revolution when it comes to this ‘middle ground’ – the space between mainstream residential mortgages and what has been the ‘go-to’ product for later life lending, lifetime mortgages.
The FCA had been somewhat nervous about the suitability of ‘traditional’ lifetime mortgages for younger customers, especially where no repayments were being made, citing the potential for significant roll-up of interest over a lengthy period and the impact this has on a customer’s property equity.
However, over the last year lenders and providers have responded positively and there are now a range of products which are much ‘friendlier’ to younger later life clients, which take into account affordability, and provide plenty of options and benefits when making interest payments.
Hence, why more2life – amongst others – has launched its Flexi Payment Term lifetime mortgage which, for customers aged 55-62, has a specific part-interest serving payment for a fixed payment term built in. It doesn’t require the level of interest payment you have with a typical RIO, or residential mortgage, or even other payment term lifetime mortgages, but by making these payments it allows the clients to secure higher LTVs and lower rates.
However, with reference to Consumer Duty again, we have all been made aware of the need to provide holistic later life lending advice, to, access the growing range of later life products now available and take all of the available options into account when considering the needs of any over-50 borrower.
To bridge the divide between the traditional mainstream mortgage and the traditional lifetime mortgage, as a lender, we have had to be innovative and consider how to best serve the needs of customers of course, but also of advisers who may – up until now – have sat either side of this ‘divide’.
Hence, we wanted to create a product pathway where there were options available which can take advisers and their clients from a full-payment, pre-50 mainstream option to one where they serve interest while they can afford to, and then have the option perhaps after retirement, to allow interest to roll up like a traditional lifetime mortgage.
In that sense we want to deliver flexibility and to develop products which may be later life lending in scope but have certain mainstream ‘feels’, with an assessment of affordability, the ability to better manage borrowing costs and lower charges.
It’s why we have, for example, recently relaunched our Apex lifetime mortgage which only has a four-year ERC period compared to the standard of 10-15. It’s also why we have also introduced our first-of-its-kind Maxi Zero ERC which, as the name might tell you, comes with no ERC, providing maximum flexibility for those who clearly need to borrow but who anticipate their circumstances may change in a period when ERCs are more typically applicable.
These are just the first of several different product options which are tailored for a new era of later life lending customer, to help those transition from mainstream borrowing to later life. Our exciting new products are designed to provide much-needed flexibility, to cater for those who want to manage costs to better protect their estate, for example, or, who may well need to pay off a loan in the near future, but should still be able to secure higher LTVs and competitive pricing.
Overall, it’s important to recognise a revolution has begun and is continuing in the later life lending product space. Advisers now have the potential to offer a greater number of products to their over-50/55 customer base, with tailored options that can ease the path into later life borrowing and, if required, take them through to more traditional lifetime mortgages in the future.
Having access to this market is a must for all advisory firms with clear benefits to be had in terms of delivering positive customer outcomes but also diversifying revenue streams and positioning the firm for what is likely to be a growing client demographic and advice need for many years to come.
