Advisers and consumers alike are often confused or completely oblivious to the existence and benefits of enhanced lifetime mortgages.
Stuart Wilson is marketing director at more 2 life
Alice laughed. "There's no use trying," she said: "one can't believe impossible things."
I was once lucky enough to sit and watch a group of consumers through a two-way mirror as they were led in a discussion about annuities. It is fascinating being able to ‘secretly’ observe such events, especially – as in this case – when discussions take an unexpected turn.
The facilitator introduced the subject of medically enhanced annuities and the response from some in the group was robust and truly remarkable. “I don’t believe that, it’s too good to be true!” said one recently retired gentleman, looking almost aghast at the mere suggestion. Another agreed with him: “yes, that’s not right – it can’t be possible for you to get more income if you have something wrong with your health!”
As the facilitator was not there to challenge the panel’s views, only extract them, that accusation hung in the room as the rest of the group simply nodded sagely or, at best, looked as though they were inwardly debating with themselves whether the whole thing sounded like it must indeed have come straight out of the ‘too-good-to-be-true’ box of financial services magic tricks.
Shut away, as we were, in our darkened anteroom, it was like one of those scenes from a police drama where detectives watch the interrogation of a bang-to-rights criminal fall apart at the hands of a rookie officer. I wanted to hammer on the glass, Gene Hunt style, and shout “It IS possible! It IS true! Enhanced annuities are a Thing!” But I couldn’t. I could only watch as the discussion meandered on into a world where, to all intents and purposes, enhanced annuities were an interesting but nevertheless impossible ‘thing’.
“One can’t believe impossible things,” said Lewis Carroll’s Alice, and I don’t doubt that those two gentlemen to this day are adamant that there is ‘no such thing’ as the “impossible” enhanced annuity. And yet there is, and what’s more the concept has migrated from the retirement income to the retirement lending market, giving clients with medical issues the opportunity to secure much higher loans as a result.
We can see reflections of these misguided attitudes in research recently conducted by more 2 life into enhanced lifetime mortgages.
Advisers reported that around half (48%) of clients who qualify for an enhanced lifetime mortgage don’t end up with one, with a fifth (22%) admitting they don’t always ask clients health questions when discussing equity release. And about one in six advisers said they thought a client with medical issues would be offered worse terms than a healthy client (18%) or have their application rejected altogether (14%).
Some clients even cover up health problems because they too believe it will count against them, rather than in their favour. Like the retirees ‘beyond the looking glass’ of that consumer research panel, the idea that a medical problem could do anything other than bring you a worse outcome from a financial services company is just counter-intuitive.
More than a quarter (27%) of advisers reported that clients had lied about or at least watered down medical problems when asked. Again, the key reasons for doing so revolved around a belief by these clients that revealing the whole truth would either mean their application would be rejected (45%), they would find the process embarrassing (39%) or it would mean worse terms from the lender (28%).
What’s clear from this research is that advisers and consumers alike are often confused or completely oblivious to the existence and benefits of enhanced lifetime mortgages. Given that as many as 75% of clients aged 65+ could qualify for some form of medical enhancement on their loan and yet only around one in six lifetime mortgage sales are on enhanced terms, the gap between those who could and those who do benefit is enormous.
The key to unlocking the potential of this market must lie surely with greater education and awareness. "I dare say you haven't had much practice!" said the Queen in response to Alice and it is certainly evident that advisers are ‘out of practice’ when it comes to regularly and consistently putting enhanced terms in front of clients – asking the health questions (in particular the right health questions) and encouraging clients to be as open and honest as possible in order to achieve the best financial outcome, not a worse one.
At more 2 life we have already started our own education programme with the launch last year of our ‘Big Picture’ campaign designed to open debate and greater awareness of enhanced lifetime mortgage solutions. More updates to the campaign will follow this year but it is already gaining traction and attention.
Our assertion is that asking health questions is a critical part of ensuring the best financial outcome for retirees, and advisers seem to agree as 85% replied that health and lifestyle information should be a mandatory part of the fact-finding process.
It will certainly take time for the enhanced lifetime mortgage market to catch up with its annuity ‘cousin’ in terms of sales volumes, awareness and customer penetration – there are still plenty of clients out there who will find the whole concept of a better deal for poorer health just impossible to believe. It’s up to everyone who works in this industry to aim to change the misconceptions and, in doing so, offer more options to retirees looking for a lifetime mortgage solution.
