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Why a lifetime mortgage is no longer a decision for life

Not since 2008 has the UK faced such economic turbulence. Back then, the equity release sector was still very much in its infancy - with a total market value of just over £1bn.1 
 
Fast-forward to today, and in 2022 alone, homeowners unlocked more than £5.5bn of property wealth.2
 
They did so to repay existing mortgages, help support loved ones financially, make home improvements and repay existing debts2, amongst other things - much like those who took out equity release in 2008.3 
 
But while consumers in 2022 share similar motives to those 14 years ago, the vehicle which gave them access to some of their home’s value; equity release, is vastly different. 

How has equity release evolved? 

Today's equity release products have evolved significantly around customer needs, are more flexible than their historic iterations and have adapted significantly to changing market conditions.
 
There are also more safeguards than ever before with the Equity Release Council standards clearly outlining what customers should expect from products:1
  • All lifetime mortgages come with a no negative equity guarantee, meaning the consumer can never owe more than their home’s worth or pass on any equity release debt to their estate
  • Their interest rate is either fixed for life, so consumers are sheltered from market volatility, or if the rate is variable, it must have a capped upper limit
  • The consumer has the right to remain in their property for life or until they move into long-term care
  • The customer has the right to move to another property, subject to lending criteria
  • The consumer has the right to make penalty-free repayments, subject to lending criteria


Flexible features that bring peace of mind

New customers who are able, and whose plans meet Equity Release Council standards, can take advantage of partial capital repayments.
 
This allows them to typically repay between 10 to 12 per cent of the initial loan each year, helping reduce the amount on which the interest is charged.
 
The customer has complete control over when the repayments start and stop, and it’s can be as simple as setting up a standing order or direct debit with their lender.
 
Alongside this, plans which come with the option to make repayments, give customers power and flexibility to manage the size of their loan more effectively by better controlling how much is owed when their plan ends.
 
In addition, 61 per cent of equity release plans offer downsizing protection. 2 With this assurance, customers can relax in the knowledge that should they wish or need to move home for any reason in the future, they can do so and pay the loan back early without incurring any early repayment charge if their new property doesn’t meet the lender’s criteria. 
 
Nearly a third (29 per cent) also feature inheritance protection. 2 So, those who are keen to pass on wealth through their estate can still take advantage of their home’s value now and be reassured that a portion of their property wealth will remain untouched for their loved ones when they’re gone. 

How does equity release allow for better customer outcomes in the current climate? 

For many people, equity release could still be the right, and possibly only, option.
 
Those with an interest-only mortgage reaching maturity, a fixed-rate deal about to expire, or who are subject to a lender’s standard variable interest rate could be facing unaffordable costs to service an existing mortgage.
 
Others may be struggling to repay unsecured debts as increases in the cost of living bite. And many will be facing both these financial challenges at the same time.
 
As a result, a large portion may feel as though they have no options, which is why it’s crucial these consumers are supported and made aware of the solutions available to them.  
 
With the option to make no monthly repayments, equity release could help your clients clear their existing mortgage or debts, freeing up more disposable income every month and giving them greater control over their later life finances. 
 
Whether they decide to use these extra funds to help manage the size of the loan by servicing the interest or making ad-hoc repayments towards the original capital amount, the flexibility of these features means equity release can offer great outcomes for many customers.
 
With the further benefits of fixed interest rates and no affordability criteria, equity release could provide more protection, greater certainty and clarity for the future.
 
It’s also worth remembering that despite its name, a lifetime mortgage, the most popular form of equity release allows customers to rebroke to a new, and more suitable, deal in the future.

A lifetime mortgage doesn’t have to last a lifetime

If your client decides to take out equity release now to help overcome today’s financial challenges, in, as little as five years, they may be able to remortgage, or rebroke, just as they can do in the mainstream market.  
 
That could allow them to release further funds, should they need it, secure a lower interest rate, which could be particularly beneficial if they choose to transact during the current cost-of-living crisis, or include features which help meet needs that have become a priority during that period. 
 
So, while it’s crucial to consider your client’s long-term future as well as their current needs when recommending equity release, it can, and should be a personalised journey. 
 
And through a lifetime mortgage, your client’s plan can evolve with them as their needs and circumstances change throughout later life. That’s while ensuring they remain in their home for as long as they choose, even if a spouse or partner passes away, as well as guaranteeing they’ll never owe more than their home’s worth or pass on any equity release related debt – all of which are exclusive safeguards to equity release.

The importance of specialist advice

In economic conditions such as these, where factors such as lack of financial resilience may be particularly prevalent, it’s crucial consumers receive specialist equity release advice in order to make an informed decision. 
 
Given the pressure your clients may be feeling in the short term, it’s important for them to consider if they really need to access the whole release amount now, or if they’d be better off waiting to see if their circumstances improve.
 
Also, it’s paramount to explain the impact that making repayments have on reducing the amount owed should they be in a position to service the loan, either regularly or on an ad-hoc basis. This will help ensure your client has a better understanding of how to reduce their total cost of borrowing and provide a more personalised customer outcome.
 

How Key Partnerships can help

We provide a robust referral process to help you broaden your advice proposition without compliance responsibility. 

Key Partnerships work with specialist equity release advisers from The Equity Release Experts. Our whole-of-market advisers have their fingers on the pulse to help find clients a solution to meet their needs.

Alongside supporting your clients, for every case that completes, you could also add a valuable income stream to your business. In 2021, the average Key Partnerships referral fee paid on each completed case was £1,980*.
1 – ERC
2 – Key MM Q3 2022
3 – Key MM FY 2008
 
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