The term “later life finance “broadly covers anybody over the age of 50 years these days. That’s not because 50 is particularly old, you can still get a standard mortgage with most lenders up to age 70 for example, but there is an increasing range of specialist solutions available for clients aged 50 years and above that can run long into retirement or in some cases can have no end date at all if that is what the client wants.
That naturally means that advisers need to cater for the needs of a very large, diverse audience and consequently a wide range of needs and aims. Indeed, in 2020 the Office of National Statistics said there were just under 25.5 million people living in the UK over the age of 50. That’s almost 48% of the adult population (*i). We therefore need to stop stereotyping “older borrowers” and recognise that this is almost half of the potential consumers of financial services and for many, their greatest asset is their home
Of course, many of these customers may have paid off their mortgages but many will not. There were for example 1.185 Million pure or part interest only mortgages in place in the UK at the end of 2020. In 2020 alone the interest only mortgages of 20,000 borrowers aged over 65 were due to mature with an average interest only balance of £104,000 (*ii). These borrowers will need ongoing finance or be forced to sell up and downsize in many cases.
And that is just customers that will be forced to arrange or manage finance on their properties. There are many more who are choosing to do so and for a wide variety of reasons including: helping their children financially, inheritance tax planning, help with care costs, home improvements or even lifestyle spending to name but a few. The list goes on.
The need for specialist equity release advisers
As a result customers don’t just need qualified, specialist advisers that can advise them for the long term, they also need those advisers to offer holistic advice on the property finance products available to them. This is because, when it comes to later life finance, advisers are broadly siloed into to two camps: Mortgage Advisers and Equity release advisers.
According to the FCA there were 26,677 mortgage advisers in the UK in 2018 but it is estimated that less than 20 per cent of these are currently trained to advise on, or arrange, equity release (*iii). As a result 4 out of 5 advisers couldn’t arrange equity release for their clients.
In addition to this, many large specialist equity release firms seem reluctant to advise clients on term into retirement, retirement interest only or standard mortgage. Edward Payne of specialist advice firm Family First Finance has a view as to why that is “If you arrange a RIO or a standard mortgage you will receive between 0.3% and 0.5% of the amount the customer borrows as a commission payment, whereas if you arrange a lifetime mortgage (commonly referred to as equity release) you will probably receive 2 to 2.5% in commission. Whilst these products are different and potentially only suitable for very different customers, it’s easy to see how some advice firms’ business models may only suit advising on one type of product rather than another.” He further added that “at Family First Finance we will consider all types of mortgages available and won’t make assumptions based on a customer’s age.”
The later life finance market offers a real opportunity to advisers in what is a growing market with a real need for quality advice. At the same time, the development of new and existing products will surely offer more options to customer. This must surely be a good thing in such a diverse and growing market.
*i Source – ONS Population Estimate Report 25/6/2021
*ii Source – UK Finance Interest Only data published 28/06/2021
*iii Source – FCA – The retail intermediary market 2018
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