View more on these topics

Comment: Level playing field needed in later-life lending advice

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

Recommended

Comment: Deliver certainty in uncertain times

Home-ownership decisions put on hold amidst ongoing uncertainty. Understanding what might happen in the lead-up to Brexit in March is hard enough, but having any insight into what the post-Brexit world will look like is another thing entirely. How is this uncertainty impacting your clients, particularly those of a first-time buyer persuasion? How might they […]

Comment: Don’t rest on your laurels in the remortgage market

We must help customers who could remortgage but don’t know it. Nowadays we want certain things to be reliable. These are the foundations on which everything else is built, which enable us to develop in other areas, knowing – as Jim Bowen used to say on Bullseye – “That’s in the bank, that’s your bus […]

Richard Adams 480

Comment: Putting market myths to bed

The FCA gives the sector’s arrangements a clean bill of health. Putting market myths to bed can be a satisfactory process and the recent FCA interim mortgage competition report, while being a long way from perfect in terms of analysis and suggested measures, does do this in some key areas. Importantly, it found current commercial […]

Business people or doctor talking to customer and using laptop at office room.

How do you become an equity release adviser?

Amid growing demand for equity release lending and RIO mortgages, we investigate why there is much more to becoming an equity release adviser than passing the necessary exams. The boom in equity release lending and the recent flurry of activity in the retirement interest-only space has left many mainstream brokers wondering whether it is worth […]

Guide

Guide: 10 required letters — what to send, to whom and when?

This guide from Johnson Fleming will take you through the required communication and also give ideas for additional actions that will ensure your auto-enrolment project is a success. The topics in this guide include: the letters you need to send out; what to send and when; the importance of employee engagement; and what to consider as additional communication.

Newsletter

News and expert analysis straight to your inbox

Sign up
Comments
  • Post a comment
  • Greville Phillips 1st August 2018 at 8:33 am

    Nici; you make the assumption that any client advised by an equity release adviser will not be given the option of a retirement interest only mortgage. Yet any individual advising on equity release should be sufficiently qualified to advise on both main stream mortgage finance, to include retirement interest only mortgages and equity release schemes. Given that and the fact that in advising a client on equity release, the equity release adviser should robustly explore and discuss with the client all viable alternatives, to include more conventional mortgage / loan finance which, by definition, would extend to retirement interest only mortgages, your concerns, as detailed in your article above, are surely unfounded provided the client is initially advised by / referred to an equity release adviser for counsel?