We all know that the outlook for retirement has changed drastically over the last 20 years, both in terms of length, quality and priorities. But funding later-life has also need to change.
Innovation in the over 55s mortgage space is welcome, in both lifetime mortgages and the relatively new retirement interest-only mortgages.
The creation of retirement interest-only mortgages is a positive addition to the market and the recent clarification from the FCA has helped increase provider interest and customer choice.
But with more options, comes more complexity on what might be right for an individual and it is up to us as an industry to ensure that consumers understand all the different options available to them.
As a result of these developments there has been an unintended fragmentation of advice for later-life lending.
This is because retirement interest-only mortgages fall into the mainstream market and lifetime mortgages are part of the equity release market. And while both can serve similar customer needs, advisers do not always advise on both as equity release advisers require higher qualifications.
This could potentially lead to customers paying for advice twice, or selecting an adviser that may deliver the most suitable solution in the market they operate in, but overall, not the best solution.
Retirement interest-only mortgages typically offer higher loan-to-value and lower rates, but require homeowners to pass individual affordability tests, which is difficult if they have no regular income stream.
They also do not benefit from the no negative equity guarantee that lifetime mortgages offer and there is less flexibility in the product features such as a draw-down facilities or ability to stop paying without risk of repossession if circumstances change.
Lifetime mortgages are typically lower loan-to-value and slightly higher rates, however do not require affordability tests as the option to roll up interest payments is always available.
Homeowners have the choice to make interest payments, thus protecting the capital in their homes, and loans can be drawn down gradually.
Given these characteristics, typically retirement-interest only mortgages might be more suitable for younger customers with sufficient guaranteed income for life.
Lifetime mortgages could be more suitable for older customers and those requiring flexibility in terms of paying interest, but there are many factors to be taken into account, and therein lies the issue.
With the current difference in qualifications amongst the two adviser sets and each not operating across both markets, while this opens up distribution, it risks that customers end up with a different solution depending on which adviser they choose, and run the risk that the alternative outcome might have been better for their circumstances.
At OneFamily we believe that that the regulator should aim for a level playing field in later-life lending advice – with all advisers required to be able to direct customers to the right solution, whether that be mainstream mortgage, retirement interest only or a lifetime mortgage to ensure that customers end up with the right solution, no matter which adviser they choose.
Nici Audhlam-Gardiner is managing director of growth at OneFamily