One of the most encouraging aspects of my job at the moment is seeing the greater role that later life lending is playing in the day-to-day work of advisers across the country.
When I speak to advisers, it’s clear later life lending products are breaking through and becoming a more commonly used solution in the adviser toolkit.
The figures from the Equity Release Council bear this out, with 2024 finishing incredibly strongly and more than 15,000 customers active in Q4 for the first time in more than a year.
I believe this is down to more advisers recognising the opportunity lifetime mortgages present, and the positive outcomes they can deliver for an older client base. However, I’m convinced we are just scratching the surface, and these solutions can deliver for even greater numbers of later life borrowers.
The key however will be the assessing of affordability, and with it, establishing what sort of repayments the homeowner can make during the term of their lifetime mortgage.
Delivering better outcomes
Making repayments can have a dramatic impact on the eventual cost of a lifetime mortgage. The homeowner can take control of what their estate will have to pay at the end of the term, finding the balance of both addressing their present needs but also ensuring their loved ones inherit as much as possible.
By controlling the level of interest being rolled up, the homeowner is able to retain more equity in their home, creating more financial options further down the line, should the need arise.
Indeed, committing to making payments can unlock a lower rate in the first place. Our Horizon Interest Reward proposition means borrowers can secure a discounted rate if they commit to making set monthly payments over a term of 5-, 10- or 15-years. The exact discount will vary based on the level of interest served over the agreed payment term.
This level of flexibility, of tailoring the product to an individual’s precise circumstances and requirements, is a powerful prospect. It demonstrates just how adaptable lifetime mortgages can be as a solution, and may be the deciding factor for customers on the fence about whether this borrowing delivers for them and their loved ones.
Putting affordability at the heart of lifetime mortgages
However, these features rely on thorough affordability assessments. The adviser and lender need to be clear about the financial situation of the client, and what they can afford to pay towards regular payments.
With a traditional lifetime mortgage, affordability may have played little part in the proceedings. With no repayments, the main considerations would tend to focus on how much equity is being unlocked, the situation with early repayment charges, and other features which may be included.
But as the solutions have become more innovative, that is no longer sufficient. Just as affordability is at the heart of advising on traditional mortgages, so too should it now be a central consideration when advising later life clients. It’s crucial in order to secure the best possible outcomes, which may be dependent on making some level of repayment.
It’s a situation that is definitely improving, though. At the Equity Release Council Summit in both 2023 and 2024, we polled advisers on the proportion of their clients who were making some level of repayments towards their lifetime mortgage. Back in 2023, just 25% of advisers said there was a 50/50 split between those making payments and those who were not. But by last year, that proportion had grown to 45%.
Meanwhile, in discussions with Will Hale, CEO of Air, he stated affordability is being pinpointed within the sourcing process in around a fifth of searches. This is a positive development, and suggests affordability is now playing a bigger part in the later life lending advice process. But there’s no question this should just be the beginning, with plenty of work still to be done by lenders and advisers alike.
Meeting regulator expectations
It’s not just about delivering a better outcome for clients, but meeting the expectations of the regulator too.
The FCA has made clear its belief that advisers should be taking their clients’ affordability into account when making recommendations, conducting a thorough assessment of both what the client can afford now but also any potential vulnerabilities.
The regulator is well aware of the potential benefits that come from making regular payments, and expects advisers to not only make the case to clients but carry out the due diligence necessary to establish what is realistic.
The direction of travel
It’s been a time of great innovation in the later life lending market, with providers looking for new ways to provide advisers and their clients with a broader range of options. That creativity and determination to find new ways to address the specific needs of individual borrowers is only likely to continue.
That’s why it’s so important for advisers to ensure affordability is as central a consideration for their later life clients as for their younger ones.
It’s equally important for lenders to go further in supporting advisers, particularly those who may be new to this sector. It’s one of the reasons Standard Life Home Finance recently held a series of adviser clinics, covering everything from underwriting for later life lending and best practices for vulnerable clients, to the impact of repayments on borrowing costs.
It’s not enough to simply design and develop compelling later life lending products – as an industry, we have a duty to ensure advisers can see, in pounds and pence, exactly how they can deliver for their clients. And that has to include affordability assessments, and the potential to make repayments, as a matter of course.
Sanjay Gadhia is head of sales at Standard Life Home Finance
