BestAdvice (BA): Why is Key Group focussing on the later life lending market? You’ve talked about the prospects for the equity release market in the past so why the change?
Simon Thompson (ST): As we’ve grown as a Group, our ambitions have grown, and it is a natural evolution to look to become a significant player in the later lending life market which has huge potential. Key is already the UK’s largest specialist later life adviser supporting both equity release customers and those looking for other types of secured retirement borrowing.
AiR Group is the most popular support service in this part of the market and more2life is a top equity release lender with the widest range of funders in the market. We have a solid base on which to grow and are also well-positioned to help other organisations who see the potential in the market.
BA: Will there still be a role for equity release in the expanded market?
ST: Absolutely. Equity release is a major part of the later life lending market and will continue to be so for the foreseeable future. We have helped over-55s release more than £5 billion in equity during our 21 years in business and are committed to building on that as we know it has made a real positive difference to people’s lives. That said, the focus of everyone in the industry should be to help customers find the right solution for their individual circumstances rather than being wedded to one type of product.
BA: What do you believe are the prospects for the market? 2019 seems to be slowing down so is this a trend that you will see continue?
ST: Market performance this year has been impacted by wider economic factors and uncertain consumer confidence in house prices – a great many people have been adopting a wait and see approach. However, the fundamentals of the later life lending market remain in place and we believe it is reasonable to anticipate that we will see the market grow to £6 billion in the next few years and continue to expand in the longer term.
BA: Is it a bigger opportunity for lenders or for advisers?
ST: As a Group which boasts both a lender as well as an adviser, I must say that I have confidence in both! Customers need advice on how to unlock their property wealth and lenders are keen to lend. Indeed, the numbers of new funders coming into the market highlights the potential that they see in the sector and there is a real interest in equity release as an asset class from a range of organisations. As a Group, we are particularly keen to grow the market and work with others to do so as we believe that only through this type of collaboration will we see the sector live up to its potential.
BA: What sort of new products or solutions will be needed?
ST: Currently, intense competition has seen historically low rates and around 300 equity release products on the market for customers to choose from – as well as an increased number of later life mortgages and RIOs. I believe that innovation will come in two forms – in the form of new products designed to better suit customers’ changing needs and changes to the way we do business to better meet advisers’ needs.
At Key Group, we recently launched a new digital advice delivery platform internally which will ensure consistency of advice but also mean that advisers can spend more time actually speaking to customers rather than filling in forms. It is these types of steps that will change the market.
BA: Do you expect Retirement Interest Only mortgages (RIOs) to become more popular during 2020?
ST: Figures suggest that sales so far have been relatively slow but we advise on RIOs through Key and – while it is still an emerging market – all the signs are that they will become more popular. Increasingly you are seeing lenders launching new RIOs and this is great news as customers need to have a range of later life borrowing choices which fit their needs.
BA: Will the expansion of later life lending mean different types of firms coming into the market? Does this post a threat or opportunity for existing participants?
ST: We anticipate that growth will encourage new firms into this market and while we believe this is a huge opportunity for existing participants, there are some caveats. Equity release is one of the most regulated markets in financial services and there is a real focus on putting customers at the heart of what we do.
As an industry, we will fight to maintain standards so new entrants need to understand the vital importance of these and also realise that to be a success a significant amount of hard work is needed. It isn’t an easy market to jump into but we are keen to work with partners to deliver enhanced distribution, services and partnership opportunities for those looking to enter the market.
BA: One of the biggest barriers appears to be getting consumers to engage with the market. How do you think this can be addressed?
ST: Education is vitally important. Equity release is certainly not right for everyone but every older homeowner should at least think about whether they might need to access the value in their home in later life. With 40p in every £1 of over-65s wealth tied up in residential property, it seems wrong not to and we will continue working with other members of the industry to ensure that this type of consideration becomes the norm.
BA: You regularly talk about wanting to grow the market but what are you actually doing to facilitate this?
ST: We are looking to challenge the existing norm and over the last few years have invested substantially in marketing, services, products, people and technology to support market growth. Our investment in AiR Group is a perfect example. We saw real potential for this business to help advisers outside Key boost their business and reach more people so we chose to work with them.
More recently, Key rebranded its whole of market service to The Equity Release Experts and hired two industry stalwarts to manage their self-employed team. Will we benefit from this? Yes, but so will all the other lenders who receive business from this team. More broadly, we are also keen to work with people who want to enter the market and need support in doing so. Whether they want a partner to provide their customers with advice, someone to refer interested clients to for help, support to build their business or the opportunity to invest, we can help them.
BA: What evolution would you like to see in the market to facilitate growth and ensure that customers receive the right level of support for their needs?
ST: To help more consumers unlock a better retirement, the later life lending sector needs to grow and evolve and we are determined to be at the forefront of that development. On a more practical note, I would like to see all advisers who are speaking to customers about retirement asking them about their plans for their property wealth.
As I’ve mentioned in the past, not everyone needs to consider later life borrowing but at the very least they need to consider what their house means to them financially. Ultimately it boils down to encouraging people to look at new ways to fund successful retirements and helping them to be confident about unlocking property wealth to achieve these goals.