The road ahead: A view of the later life lending landscape
David Stevens, February 2023
- The Road Ahead - Our Prognosis: Whilst recent macro-economic challenges may present some short-term headwinds for equity release demand, we assess that the long term trends are positive with good reasons to expect market growth in the medium term.
- Why?: The underlying demand factors for customers has not changed (see data insights below); there is broadly as much equity in property as there is in personal pensions savings and increasingly UK retirees will choose to access property wealth to leverage all their wealth pools to support their financial priorities.
- The Potential Opportunities?: Investing in building long-term relationships based on meaningful understanding of customer drivers and needs. With a responsive focus on building confidence in equity release as a pragmatic and low-risk solution through flexible products and high quality service, leading to equity release increasingly used as part of an overall retirement plan.
The article below provides data and insights to support our views which we hope is useful in considering how as advisers you evolve your equity release services for the road ahead.
At LV= our view of the road ahead for later life lending is a positive one. Recent macro-economic volatility may bring some challenges for the market, but there is still demand for equity release, as well as untapped opportunities for growth within the sector.
We know that in Q4 the impact of rising interest rates tempered the success of an otherwise record-breaking year; as figures from Equity Release Council show that lending reached £6.2billion – up 29% from £4.8billion in 2021, and double the £3.06billion seen in 2017. However, we see this as short-term headwinds as the long-term drivers for purchasing a lifetime mortgage remain the same.
For example, our December 2022 reason for loan data shows that the top reason given for taking out an LV= lifetime mortgage was for home improvements, with a 5% increase since 2020. And, despite the recent cost of living challenges, retirees have been arguably the least impacted financially as research from our Wealth and Wellbeing Programme (December 2022, edition 10) shows they are most likely to say they can currently comfortably afford day-to-day costs and bills (60%), compared to 36% of 35-54 year olds.
This demonstrates that while retirees have been able to buffer some of the harshest cost of living challenges, equity release still has a role to play in funding lifestyle in later life.
Retirees are also continuing to use their relative financial stability to support their loved ones. We have seen from our reason for loan data a continued trend in customers helping friends and family, with this listed as the second most popular reason (by value) for taking out an LV= lifetime mortgage.
As people reach their later years, using equity release to help loved ones has been a long-standing driver in purchasing a lifetime mortgage as it allows customers to remain in their home but see the benefits that releasing some of their housing wealth can bring.
While there is clearly consistent demand for equity release and an arguably increasing consumer appetite for it, there is also the opportunity to use it as part of wider holistic retirement financial planning.
The Financial Conduct Authority (FCA) recognise a wider range of retirement options is now available but that pension advice can be complicated. So, as part of their ‘Thematic review of retirement income advice’ they will explore how financial adviser firms are delivering retirement income advice, including links to lifetime mortgages, to get a clearer understanding of outcomes for consumers in later life.
According to Nuts About Money, a pension needs to have £296,594 (excluding the State Pension) for retirees to live moderately well. As of December 2022, the UK House Price Index shows the average house price in the UK is £294,329. Therefore, the wealth tied up in people’s homes is comparable to a pension savings pot and provides an opportunity for their homes to fund later life lifestyles. Alternatively, for those who are keen to pass on wealth to their nearest and dearest, relying on housing wealth before pension savings could be a more tax-efficient approach.
To give our customers the choice and control needed to manage their finances in retirement, we have recently provided greater lending flexibility for our Lifetime Mortgage Drawdown+ and Lifetime Mortgage Lump Sum+ products, including higher maximum loan, reduced minimum age and higher property value.
As we continue through this unsettling socio-economic period, the fundamental needs for lifetime mortgage products remains and we expect to see interest rates stabilising once inflation is under control. Moreover, in challenging times such as these, the stability of income from housing wealth could yet prove to be an ever increasingly valuable asset in holistic later life retirement financial planning.
LV= has been a committed lifetime mortgage lender since 2002 and we will continue to adapt and develop our proposition and technologies to respond to these market forces as we navigate the road ahead.
Sources:
Equity Release Council, Q4 2022 market statistics
LV= Reason for loan data, December 2022