Later life lender, more2life, released data today illustrating the most common reasons for equity release application declines, as the trend of consumers leveraging equity for their later-life finances continues to rise.
According to the company’s data, the principal reason for application declines in Q1 2023 was ‘value’.
This occurred when the property failed to meet the minimum or maximum value criteria, or when the borrower wished to release a higher loan-to-value ratio (LTV) than was feasible.
The subsequent top four reasons for declines were flood risk, proximity to commercial property, the home needing significant repairs, and single-skin construction. This lineup reflects a shift from Q1 2022, where commercial proximity was the leading issue, and value-related concerns ranked fifth.
The recent instability in the property market has likely contributed to more cautious underwriting decisions regarding long-term sustained value and the impact of commercial property proximity.
The increased number of properties declined due to perceived inferior performance—attributed to location or factors like poor repair or lack of planning regulations—also supports this view.
The borrower’s credit history ranked sixth as a reason for decline, with lenders exercising caution if the applicant has significant outstanding debts that might necessitate future property sales to settle.
The data also highlighted the evolution of the industry, as the most common reasons for decline have shifted from pre-pandemic (Q1 2019) to post-pandemic (Q1 2023), with only six of the top 2019 reasons still causing issues in 2023.
Notably, lenders seem more open to discussing properties with flat roofs, structural issues, and former local authority properties. However, the use of spray foam insulation remains problematic.
Ben Waugh, managing director at more2life, commented on the release of the data, emphasising the critical role of advisers in managing client expectations and selecting lenders more likely to approve applications.
“With six different funders who each have different underwriting criteria, more2life is ideally placed to support as many customers as possible…The current market volatility makes it even more important for advisers to have these conversations with their clients as part of the initial meeting and ensure that when they do submit an application there is a better chance of it completing successfully.”
