In the equity release market, I’ve always felt there was a potential disconnect between what the industry might consider important and what is important to clients.
For instance, as is our want in financial services and the wider lending market, we tend to talk a lot about price. Clearly rates are important, what people are going to pay each month for their mortgage is important, and when rates are competitive there tend to be more options for clients.
In the equity release space, we also focus on rates and pricing. One of the historical criticisms levelled at equity release – and to a lesser extent, other forms of later life lending – has been that it is too expensive and therefore not ‘value for money’ for the client.
At present, that criticism is easy to bat away. Pricing has been ultra-competitive for some time and, some of the lifetime mortgage rates you’re able to access now, would have seemed like fantasy just a few years ago.
Rates are currently deemed to be at very low levels, and there is a slight consternation within the industry that ‘the only way is up’. That might well be the case, after all, swap rates have gone up in the last couple of weeks, and lenders might well find themselves having some difficult decisions to make in the months ahead.
For instance, very few lenders last year would have anticipated another lockdown situation, but that is what we have. As a result, volume may well have been subdued during this last six-week period, at a time when ordinarily they might be looking to raise rates in line with what is happening in the capital markets.
However, if volumes are down slightly, perhaps the better option is to keep rates lower, take the hit to margin in an attempt to secure the business that is out there. I suspect that many providers would actually prefer to defer this decision, certainly over the next few weeks, if the lockdown does begin to get eased.
But, the wider point here, and again this is one that might be forgotten, is that equity release is not a rate-driven solution anyway. Cut your rates significantly and you might pick up a bigger share of what is available, but it’s not a decision that is going to drag in vast swathes of business, unlike what you might see in the more mainstream mortgage market.
Equity release clients will require the money, and need the solution it offers, regardless of what the rate is. If advisers have gone through the full process and come to the recommendation that equity release is the best option, then the rates are what the rates are. They are not going to determine whether the recommendation is equity release or otherwise, because that decision has already been made.
Of course, advisers will look at a client’s other assets, could they be utilised, they will look at whether downsizing is more appropriate, they will look at whether that cash requirement can be covered elsewhere, but they will not be looking at equity release rates in order to justify the decision to go down that route.
And therefore in that client-need-context, rates become irrelevant. We clearly want to provide product solutions that give the client the very best financial outcome they can have, and a smaller rate will be of benefit. But, it will not be the differentiator in terms of the advice recommendation.
If you want my view, then I suspect rates will inch up throughout 2021 as providers seek to secure a bit more margin, but that is neither here nor there to clients, who enter the market at a moment in time when rates are what they are, and if they want to go ahead with the adviser’s recommendation, then that is what they are going to have to accept.
We can’t obsess about rates or pricing because the client won’t be. They’ll be concerned about how they can secure the money they need, how quickly they can get it, and what it ultimately means for them to do this via the equity release route rather than via another product. Rates will be what they will be – the solution stays the same.
Stuart Wilson is CEO at Air Group