Stuart Wilson is CEO of Air Group
When you consider the scope and the potential within the later life lending market, you have to get to grips with some sizeable figures.
For instance, recent research by Key suggested the total property wealth now owned by the over-65s in the UK currently stands at £1.133trn – and that is just the amount for individuals who have already paid off their mortgage.
In the past year, that’s increased by £14.78bn – in itself a staggering number – but we must also view that in the context of annual house price inflation which, until the end of the year, was tending to bump along the bottom at somewhere around 1-2%.
Admittedly, this has crept up in recent months and the mood music around the sector is currently set to a tune which shows further improvement, but even so, over the course of 12 months to see an increase in property wealth of close to £15bn for this age group is note-worthy.
In other words, the value of pensioner-owned property continues to rise and therefore to see, for example, equity release lending just shy of £4bn in 2019 perhaps tells you the very small space this type of activity currently occupies in the grand scheme of things.
Which, of course, is not to say that – coupled with other types of later life lending – the potential for this market is in anyway undiminished. My view is that the need for lending in later life will only increase and the position of advice within such a need is going to be absolutely vital. This is definitely not a market for the execution-only distributor, the price comparison site or the ‘robo bot’, and advisers who grasp the nettle here will be rewarded.
However, there are some consumer-based issues and understandings to be confronted and, until myths can be dispelled and until we can provide greater clarity and confidence to consumers about the options and solutions available to them, then we are likely to fail in terms of allowing the later life lending market to reach its true potential.
Here’s two further pieces of research which show the extent of the issue and mindset that needs to be overcome. Firstly, from Openwork which conducted a nationwide study of the over-55 consumer and found that 64% had never sought any advice on their retirement plans, while Ipswich Building Society delved into the collective consciousness of over-50’s borrowers and their perception of the availability of mortgages for them. The results stated:
- 57% felt they had fewer mortgage providers available to them than younger borrowers.
- 60% felt they had fewer mortgage products available to them and 44% said they felt they were offered less favourable rates.
In an environment in which none of the above is true – indeed, quite the opposite – it is somewhat shocking to see their perception of the market compared to the reality. And I would also hazard a guess that there is a significant cross-over here between those borrowers who feel this way and those who are not taking any advice around what their options might actually be.
Now, this is not these individuals’ fault, let’s be clear about that. If we, as an industry, are not good enough at sign-posting the availability of advice and the product solutions that are open to these potential clients, then we cannot blame these people for not being aware of their options.
We also have to recognise the customer demographic we are dealing with – on the whole, although this is slowly changing, these are not individuals who ‘want’ equity release or a later life loan, they’re inclined not to want to access the equity in their homes, they’d much prefer to downsize, and they tend to be fearful about making such decisions, to such an extent, that they end up making no decision at all. Which ultimately is the worst thing they could possibly do.
So, we have some major obstacles to overcome. But we also have some major advantages and much of this boils down to the problems older customers have, the means they currently have to solve them, and the fact that these problems are not going away anytime soon.
If you have a pension shortfall, what can you do? If you need to pay off the capital after your interest-only mortgage ends, what do you do? If your partner requires long-term care, what do you do? If your family need support to buy their first home, what do you do? If you need money to keep on living your lifestyle in retirement, what do you do?
These are ongoing issues which are not going to be solved by any sort of government intervention, and therefore the use of the primary asset in order to deliver a satisfactory solution is going to become more prevalent.
In order to give peace of mind and to outline all solutions, responsibilities and what that means for the future, advice is absolutely necessary.
It’s more necessary now than it’s ever been, and it’s going to be more necessary in the future than it’s ever been before.
We have the tools at our disposal to help a much larger number of older consumers at a crucial part of their lives.
But we need to let them know what we can do and where we are to help them. It’s a message which should be at the heart of everything and, if we can get its delivery right, all stakeholders are likely to prosper.
