Dean Mirfin of Key Retirement says there has been a significant rise in the number of interest-only mortgage customers opting to take out equity release products in order to pay off their capital is fuelling the growth in the sector.
Speaking at yesterday’s FSE Cardiff at the SSE Swalec Stadium at Sofia Gardens, Mirfin pointed to the growth in equity release lending, new plans and the average loan size, and said much of this was due to interest-only mortgage customers.
“On average, over the next four to five years, there are 40,000 interest-only loan maturities each year,” he said. “They are under pressure because large numbers are unable to borrow because they won’t meet affordability criteria. A major usage for equity release is to repay the mortgage – in 2011 17% of our customers were using the money to repay an outstanding mortgage and this has now gone up to 21%.”
Mirfin urged advisers to engage with those mortgage clients, on interest-only products, who could potentially be suitable for an equity release product when their term runs out. He also outlined the new innovation in the equity release space – notably hybrid products which combine both a roll-up and serviceable interest element – which might be suitable for these customers.
“The problem with interest-only borrowers is getting the loan high enough for them to pay off the mortgage,” he said. “How can we get a higher LTV? Here is where we are close to products which offer serviceable interest across the entire life of the loan. In the future we should expect to see partnerships between different lenders with one funding the roll-up, and one funding the serviceable interest element, but for the customer this is just one loan. So we could have a 70 year-old borrowing 50% but only servicing 10% of it.”
Mirfin agreed that one of the biggest barriers for the equity release market was getting high-street/mainstream lenders to market, enabling the sector to spread the risk to different lenders.
He also said the market is just at the start of three waves of interest-only customers coming to the end of their terms and not having a repayment vehicle in place to pay off the capital.
“This year is the start of the first big wave,” he said. “The second wave will come in seven to eight years’ time, and the third in about 2030. However, the problem for the first wave is that they have little time to solve this.”
He suggested that advisers had a strong opportunity with potential equity release clients and that, even if they didn’t provide the advice themselves, they should be referring to specialists.
“The opportunity is vast,” he said, “especially for clients who do want to service some of their interest. If you don’t advise, then refer. There is much more flexibility than ever before. If you take one thing away from this, then it’s to make sure you monetise the value of the home to the client; show them what it’s worth to them in cash terms without them having to sell.”
