The home lending market in the UK needs to adopt a more joined up approach to delivering advice to older borrowers and to narrow the gap between mains
The home lending market in the UK needs to adopt a more joined up approach to delivering advice to older borrowers and to narrow the gap between mainstream lifetime mortgage advice and that aimed at over 55s.
According to new research undertaken for the Council of Mortgage Lenders (CML) households headed by individuals aged 55 or over form a significant part of the market numbering approximately 11.8 million or 46% of all households.
It also points out that with over 55s holding £6.4 trillion of wealth and £2.5 trillion of property wealth and lending to older borrowers grew in 2016, driven by remortgages and lifetime mortgages.
However, at the moment the mortgage advice market is divided into lenders and intermediaries who lend and provide information and advice on residential mortgages and those who do so on equity release products which are mainly lifetime mortgages.
The report suggests the two markets have very different attitudes towards borrowing in later life. Residential mortgage lenders have traditionally viewed borrowing as a means to accumulate equity and a retirement free of debt. The lifetime mortgage lenders see borrowing in later life as a means to help customers extract value from the accumulated equity.
The research acknowledges that advising older borrowers can be time consuming and expensive. Borrowers who may need to move between the two markets or who may wish to weigh up the advantages and disadvantages of each market find there is no single obvious place to go and no joined up framework for addressing their needs.
It says that this needs addressing, with the Government best placed to facilitate such a change and also suggests that consumers are maybe frustrated at barriers to borrowing, some of which can seem to them unfair. They also perceive that the products available do not fully meet their needs and that products can be difficult to compare and understand.
The report recommends that the new Single Public Financial Guidance body (SFGB), due to be introduced from Autumn 2018, should explore ways of increasing the provision of and signposting to fuller information sources available to older consumers. Crucially, this needs to be integrated with pension guidance.
It also recommends that guidance services and industry should develop better tools to help compare and evaluate later life borrowing options and should encourage and facilitate an expansion of advice services by advisers to include both residential and lifetime mortgages.
Looking ahead, it adds that there should be further exploration of the reasons why some advisers with regulatory permissions to advise on lifetime mortgages choose not to use them to find if this is down to increased conduct risk concerns of for business volumes versus effort reasons.
Finally is says that regulators and residential mortgage lenders should further explore how they judge affordability in retirement, taking account of income from investments, savings, DC pensions and state benefits and attitudes towards repayment mechanisms should be adapted to include sale of property and/or transfer to a lifetime mortgage.
‘Older people have to make complex, often inter-related decisions about a range of financial services products, from pensions, wealth management and mainstream mortgages, to equity release. More flexible ways to borrow and use housing equity throughout life will play an increasingly key role in how these decisions are made,’ said June Deasy, head of policy at the CML.
‘The research shows that consumers can see a disconnect between their need and the service provided, and a desire for clearer signposting to their options. The CML believes that government is best placed to facilitate this signposting role, as it develops its Single Financial Guidance Body. The CML remains committed to working with the industry, regulators and consumers themselves to address the associated challenges and opportunities of later life lending,’ she added.
Nigel Waterson, chairman of the Equity Release Council, backed the call for the mainstream mortgage and equity release markets to work more closely. ‘In doing so, the best possible outcomes can be delivered for consumers and we are always open to the opportunity to work with other industry bodies and regulators to achieve this goal. We hope that by working collaboratively, we can make further progress in joining the dots between equity release, residential mortgage, and pensions,’ he said.
Every consumer has different needs, and it is vital that advisers possess a comprehensive knowledge of a range of potential solutions, including those available via the wider mortgage market. We fundamentally support any initiatives to drive greater volumes of referrals between specialists, especially where customers’ needs can’t be met within an organisation,’ he explained.
‘We are also encouraged by the CML’s acknowledgement of the significant progress the equity release sector has made in recent years towards serving a broader customer base, through the addition of more flexible products and new entrants to the market. Equity release advisers and providers are experts in later life lending and play a vital role in helping people financially plan for retirement,’ he concluded.