Small lenders lead the way on equity release
Your article concerning the FCA investigation into product access for older borrowers contained a number of comments, which I felt required a response.
Sue Lewis, chairman of the Financial Services Consumer Panel, made several points. I agree that traditional lenders need to look at maximum age limits but already a few regional building societies are flexible on lending in retirement, including the Dudley, which has recently scrapped maximum age limits. I think this trend will grow as conventional lenders try to square the need for greater choice of borrowing into retirement with their responsibility for ensuring affordability.
Elsewhere, Lewis’s comment that “older people may be forced into the alternative market of equity release” gives us an opportunity to look at perceptions that still need to be addressed. Certainly, charges and interest rates are generally higher in equity release. However, with the guarantees of both security of tenure and a fixed rate for life, for example, it is perhaps unsurprising that costs are higher.
On the subject of rates, we are very fortunate as borrowers to be living in a very low interest rate environment.
It needs to be remembered that the growing success of equity release, with the potential for £2bn of new business this year, is a sign that the public already recognise where equity release can help them. The increasing market penetration that equity release is achieving will also encourage a greater variety of lenders.
The UK has a growing need for alternative finance strategies into retirement and, with the concerns over affordability for an ageing demographic, equity release has a vital part to play.
The needs of customers can be met only by suitably qualified intermediaries, who can pinpoint the right solution for each client’s circumstances, one of which may well be equity release.
I agree with Lewis that equity release is not right for everyone but, as the debate on funding into retirement gathers pace, there has never been a better time to put aside our preconceptions and look at the potential for equity release to provide workable solutions.
Gary Webster, Equity Release Supermarket
No need for self-cert – plenty of other options
A recent Mortgage Strategy cover feature posed the question: “Is there a place for self-cert mortgages in today’s market?”
In short, no. Let’s stop this pussy-footing around: self-cert mortgages are gone, extinct, caput.
I wish everyone would stop giving selfcert.co.uk free airtime. It is not a serious player and probably will not be around in 12 months’ time. It is time to kill the idea of self-cert mortgages having a comeback. The market has moved on and the regulator has made it clear that self-cert mortgages have no future in the UK.
There are plenty of mortgage options in the UK for self-employed workers. For instance, contractors can now be assessed on their contract rate; no need for accounts. Even self-employed clients not on PAYE can get mortgages with only one year’s accounts or trading history.
The problem with the marketplace is there are not enough mortgage brokers with sufficient knowledge and experience in dealing with business owners and self-employed people. Typically, such clients struggle to obtain mortgage funding due to income complexities in the various tax-efficient payment strategies they use. How many brokers can look at a set of accounts and understand how to present that client in the best possible light? Even underwriters sometimes struggle to make sense of clients’ relevant earnings.
More training is needed to create a new generation of brokers who are equipped to deal with self-employed clients. And it needs to start with the IFS.
In the old days, brokers did not need to concern themselves with understanding different self-employed payment structures; they just resorted to self-cert mortgages. That is why there is a gap in knowledge with certain brokers. You would be surprised to learn how many advisers cannot differentiate between a sole trader and an LTD business owner.
I also believe that more flexibility is needed in dealing with clients who have less than one year’s accounts. Why should they be treated differently?
There are plenty of solutions to consider but bringing back self-cert mortgages is not the answer.
John Yerou, Freelancer Financials