Stuart Wilson is channel marketing director at more 2 life
One of my favourite TV programmes as a child was Tomorrow’s World. It was an unquenchably optimistic programme dedicated to presenting and predicting the ‘next big thing’ in the world of science and technology.
In an age before the internet, it was a rare glimpse into subjects that would otherwise remain hidden from general view – I first learned about CDs and mobile phones from watching the likes of Judith Hann and James Burke struggle to demonstrate rudimentary prototypes on (rather unsuitably) live television.
But there was a problem – even successful prototypes take time to get into production and become mainstream so this bright new future promised by the presenters never seemed to arrive. It always seemed to be a ‘jam tomorrow’ scenario, except the jam was going to be served to you by a personal butler-robot called Steve who would then chauffeur you to work in your flying car.
When it comes to equity release, there is a touch of the Tomorrow’s World about all of the presentations, round tables and industry events I have attended over the past 2 years. Time and again, presenters (myself included) have insisted the market is about to explode, that we are on the cusp of huge expansion – you wait…this year…next year perhaps.
We’re still waiting.
OK, I’m being a little disingenuous. We have had several years now of back-to-back record growth and sales of equity release. But let’s be honest, we haven’t reached that breakthrough moment: the mobile phone launch, the arrival of digital music, the flying car.
But I’m going to do my best James Burke impersonation now and try and convince you that we are about to see that growth we’ve been talking about for so long.
Firstly, the start to 2016 has been phenomenal from a new business point of view. At more 2 life we have been breaking records each month and I know we are not the only lender doing so. But the first part of my evidence isn’t about just striking some fortunate streak of new business gold. The market is changing, expanding, and flexing its muscles.
Just recently we have seen the arrival of One Family into the market – a new lender with a new type of funding behind it, bringing the opportunity to deliver new product solutions, namely a CPI-linked interest rate. The early success of this venture will surely mean that more new funders including DB pension schemes will soon be queuing up to claim their own slice of this burgeoning market.
We haven’t seen variable rate products since they fell from favour in the early ‘Noughties’ but far from being a backward step, these new products bring a new dimension and more importantly a new type of consumer to this market – a younger, more financially savvy client, more likely to be carrying debt into retirement and more active in seeking out lending solutions that mirror those they have been used to purchasing during their working lives.
There is no doubt the average equity release customer is getting younger – the percentage of purchasers aged under 70 is growing rapidly and is set to continue. One of the main reasons for this is the growing issue of interest-only mortgages and the increasing numbers of those in their late 50s and early 60s turning to equity release as a means of repaying and managing their current mortgage debt.
So the recent announcement by the FCA that it is to relax the requirement for affordability testing on interest-served lifetime mortgages is superb news. It opens the door not only to more sales of conventional interest-served plans but also the opportunity for lenders to innovate and bring new solutions for clients who want to carry on servicing at least part of their mortgage debt into retirement.
Products that can deliver much higher levels of LTV than those currently available, with an interest only ‘top up’ to a standard roll-up mortgage, are now a distinct possibility because of the FCA’s change of heart. This would open the door to thousands of new customers each year who can’t currently access lifetime mortgage deals because they owe more on their IO mortgage than the maximum LTVs available.
Currently, only about half of the 40,000 or so people aged 65+ who have an IO mortgage about to mature can qualify for a lifetime mortgage – it has been estimated that an uplift in LTVs of just 10-15% could increase the percentage who qualify from 50% to 85%.
This is potentially billions of pounds of extra lending each year. And product innovation like is not years away, it could be just a matter of months.
New products, new lenders and funders, new markets opening up, more clients entering the market being advised by an ever-increasing number of advisers…the evidence is all around us. This market IS set for huge growth.
Ok so we still don’t have the flying car, or the robotic butler, but from an equity release perspective tomorrow’s world is now a lot closer.