Homeowners have faced a challenging time over recent years due to economic uncertainty and the rising cost of living.
However, things are starting to look more optimistic, with recent Legal and General Home Finance research showing that fewer homeowners are using lifetime mortgages to fund living expenses or emergency purchases as cost-of-living pressures ease.
Instead, we’ve seen a significant increase in the number of customers strategically using their property wealth to help their longer-term financial position and goals, by consolidating debts and repaying mortgages.
For many who originally planned to downsize, there is a desire to remain living around friends and family in a property they know and love.
A future where equity release will sit alongside pensions
As interest rates start to come down from their peak, we anticipate that equity release will move further into the mainstream and become a more significant part of many people’s later life financial planning.
Nowadays, more and more consumers are looking for a more holistic approach to their finances, and equity release can bridge that gap and sit alongside more traditional retirement products such as pensions to provide more options during retirement.
Therefore, the industry must adapt to reflect that, and meet the evolving needs of people enjoying a longer retirement, and with a greater risk of a shortfall. It is crucial that as lenders, we acknowledge that not all people will follow the same retirement path, and that offering accessible, innovative products is key to supporting that.
Retirement needs are changing
There are £88bn interest-only mortgages at less than 50% loan to value (LTV), and 50,000 of these are maturing each year – as these customers’ residential mortgages come to an end, there is the inevitability of higher prevailing rates and higher monthly payments than they have been used to.
As a lender, we are always in communication with advisers and their feedback suggested that greater diversity was needed in the later life lending product landscape to meet emerging customer needs. There was a large cohort of customers who needed to borrow more and were comfortable servicing their interest for a committed period.
In response, Legal and General Home Finance launched the Payment Term Lifetime Mortgage (PTLM) late last year to improve options for homeowning over-50s and widened accessibility further this year.
Looking forward
Trade bodies such as the Equity Release Council (ERC) have shown support for innovative products like PTLM. For instance, the ERC updated its standards to include mandatory payment lifetime mortgages, which brought an extra layer of reassurance to customers who are looking for improved borrowing options.
Looking ahead, we anticipate that property wealth will become a central part of the wider mix of products to support people’s retirement needs, alongside pensions and ISAs.
Whilst it might not be a perfect fit for everyone, lifetime mortgages have the potential to be the answer to customers’ evolving later life needs.
As part of this, it is important that we stay committed to listening to adviser feedback and addressing market accessibility to deliver the best customer outcomes.
