Traditionally, the later life lending market has been one which was dominated by equity release, predominantly serving older homeowners in their 70s who needed or were looking to access the wealth tied up in their properties.
Recently, it has become clear that we are experiencing a significant shift with managing outstanding house purchase debt into retirement becoming the major driver of the later life market.
As a result, customers are getting younger and more diverse as have their reasons for exploring later life financial products.
This transformation presents both new challenges and exciting opportunities for advisers who are open to embracing innovative product solutions tailored to the needs of a more diverse client base, some of which are more closely aligned with mainstream mortgage options.
The changing face of the later life borrower
As part of a recent Air podcast – available here – I explored these topics with Ben Waugh of More2life and Marie Katch of L&G, looking at how the changing demographics of later life borrowers are reshaping the industry.
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Within this we discussed what ‘typical’ later life lending customers traditionally looked like – we tend to think of clients taking out lifetime mortgages as those in their 70s. Asset-rich/cash-poor individuals with unencumbered properties releasing equity to supplement their retirement income, cover unexpected expenses, or treat themselves to a better quality of life in their golden years.
However, as Katch highlights in the podcast, the average age of customers has been decreasing: “If you’d asked a few years ago what a typical customer looked like, it would be slightly different to what it is now. We used to have an average age of around 70, 71 for lifetime lending but that has kind of shifted a little bit.”
This shift has had significant implications for advisers. It means the traditional view of an equity release customer no longer applies. Many of today’s customers are still in their 50s or 60s and are dealing with ongoing mortgage debt or unexpected financial pressures.
This is a significant change from the aspirational motivations of earlier generations, who often used equity release to fund home improvements or holidays.
Waugh echoed this sentiment: “We’ve definitely seen a shift from what it used to be…customers in their 70s [who’d] cleared their mortgage and wanted to top up for retirement, buy the camper van, go travelling, and I think post-Covid, cost of living crisis and increases in interest rates, we have definitely seen a pivot towards more customers that are struggling with the cost of living, and it’s definitely needs-based.”
Adjusting to the new reality
Advisers need to adapt to this new reality by understanding the specific needs of this younger, more complex customer base. It should be clear that the products which worked well for those older clients may not be suitable for someone in their 50s facing different financial challenges.
As the demographic profile of later life lending customers evolves, so too have the products available to them. The introduction of hybrid solutions and interest payment options – focused on borrower affordability and their ability to repay some or all of the interest – alongside more traditional lifetime mortgage options with evolving features and of course mainstream products, gives advisers a much wider array to firstly, access, and secondly, to advise and recommend upon.
Waugh emphasised the importance of these solutions in today’s market, noting the once-clear distinction between traditional mortgages and lifetime mortgages, with nothing in between, no longer applies. He also highlighted how the regulator is not particularly favourable toward lifetime mortgages for younger customers, making it essential to explore alternative solutions from multiple perspectives.
This shift means that advisers must be well-versed in the features and benefits of these products and understand how to match them to clients with specific financial needs.
One of the key advantages of these newer products is their flexibility, particularly beneficial for younger customers who may still have an income but want to avoid the growing debt associated with a traditional lifetime mortgage.
As advisers, it’s therefore essential to stay informed about these demographic shifts and the innovative product solutions that can help meet the needs of today’s clients. Katch emphasised the importance of educating advisers and their customers, to know there are solutions out there, particularly if they have simply assumed up to this point that there are none.
The good news is both established later life lending advisers, and more mainstream players looking to enter the later life market, can utilise all the tools, sourcing, education, information available via Air, and also tap into what providers are offering.
Product knowledge is clearly vital here but so is an acknowledgement that traditional options may no longer apply, and there is a much wider client demographic for whom these newer products might be the most suitable for their needs.
As we move forward, it’s clear advisers who can adapt to these changes, while offering later life lending products that cater to both short-term and long-term financial needs, will be best positioned to serve this, and the next, generation of older borrowers.
