Other large lenders will recommend lifetime mortgages following Santander’s recent vote of confidence in the sector, industry experts predict.
However, brokers warn that consumers are best served by equity release advice that covers the whole of the market, rather than by restricted options.
A week ago Santander announced a five-year deal with L&G Home Finance and Key Retirement that will see L&G provide lifetime mortgages to Santander’s interest-only customers at the end of their terms.
Santander is writing to its interest-only customers to tell them about the option. If customers are interested, a ringfenced team at Key Retirement will step in to advise on L&G lifetime mortgage options.
Santander does not profit from the arrangement. Key Retirement group director Dean Mirfin says: “What this move is all about is Santander acknowledging that there are customers on interest-only mortgages, and it is taking a view that lifetime mortgages could be more suitable than a conventional mortgage.”
In May, Nationwide said it was interested in providing a form of lifetime mortgage, although this would not be a typical equity release product.
Experts say the move by Santander will encourage more large banks to recommend equity release and will fuel growth in the sector.
John Charcol senior technical manager Ray Boulger says: “A major lender announcing a deal to offer clients this facility, albeit on an outsourced basis, can only help to endorse that process.”
Coreco director Andrew Montlake says: “As soon as one lender does something, there’s every chance that other lenders will follow suit. Having said that, I expect other lenders to develop their own products to cover that gap, and I think that will happen more and more in the future.”
Bower Retirement Services chairwoman Andrea Rozario says: “It is recognition of the fact that equity release is a viable solution for a number of people in this position. It is going to raise awareness. It will have a knock-on impact for confidence.
“A brand as big as Santander writing to its customers about equity release is positive for the industry as a whole.”
Equity Release Council chairman Nigel Waterson says: “There is a very real possibility that more banks will follow this move. There are several large lenders with backbooks of interest-only mortgages who may want to offer this option to borrowers.”
Mortgage Strategy understands a number of small building societies are looking to set up similar deals.But some say consumers should be offered whole-of-market advice on equity release.
Boulger says: “L&G has some of the best deals in the market, so if you’re going to select a partner for a lifetime mortgage then L&G would be a very good choice. But one lender is not the best solution for everybody. From a provider’s point of view, it’s really quite surprising that it would effectively promote a single lender.
“There are a lot of different solutions that could work for these people, and everybody is different.So the referral, in my view, should be to someone that can provide that independent advice.”
Rozario says: “The lenders need to be linking up with distributors like ourselves that can offer a variety of solutions to their customers.
“The customers need to make sure they are getting impartial advice in this area in particular. We think the relationship should be between lenders and distributors.”
A Santander spokeswoman says: “We recognise that, for some of our existing, interest-only customers, their financial circumstances change in later life, which can result in them not having the funds to repay their mortgage when the term ends. We also know that other customers wish to release equity from their homes. Whatever their circumstances, we want to support all customers and meet their mortgage needs.
“This new partnership with L&G promotes flexibility and choice for these customers who are approaching retirement and want to find a solution that suits their lifestyle and financial position.”
L&G Home Finance chief operating officer Steve Ellis says: “There are a number of options available to Santander interest-only customers, and the lifetime mortgage, through L&G Home Finance, is just one of the array of options that the bank will discuss with its customer.
“We want people to take a lifetime mortgage because it’s right for them, not because they feel pressured into it. If the L&G product isn’t right for the consumer, the customer can then go into Key’s whole-of-market journey.”
ERC members expect the market to top £2bn of lending in 2016.