Understandably, there is a lot of speculation and conjecture around the current economic environment, what could be coming over the horizon, and how this might impact on the later life lending sector.
Needless to say, when you have significant increases in the cost of living, reflected in high inflation figures, feeding into higher Bank Base Rate (BBR) and product rates, and with a ‘baked-in‘ recession likely to hit in the last quarter of the year, there will be a degree of nervousness around most sectors and how this will pan out.
Within the later life lending space, there are multiple threads to pull at. So, for example, do we anticipate any of the above impacting on lenders/providers’ appetite to lend in this space or indeed the funding they have available to do so?
The answer to that is no. Funding is currently strong, and there is an anticipation that other new offerings and propositions will launch during the next 12-18 months. Indeed, named brands – especially those trusted by older consumers – are increasingly likely to make their play and this will result in further product innovation. In that sense, the sector is in a good spot.
Rates however are likely to continue to track upwards. We’re all acutely aware the Bank of England is likely to keep on increasing BBR, even if I’m not entirely sure what actual impact this will have on soaring inflation, when most of the increases are not consumer-led.
Those lenders/providers I have spoken to about rates don’t expect the rising rate environment to last too long, however when quizzed, are rather woolly on why that might be, or indeed how long they do think it will last. Most predictions I have seen point to inflation beginning to come down in 2024, and rates will follow. We await to see just how correct this is.
The major point for advisers however to be aware of, with everything going on, is the impact the cost-of-living increases will have on demand. Now, ordinarily, increased demand is good news because it means increased demand for advice and increased transactions and income for advisers.
What we do have to be incredibly careful of here however is increased demand for later life lending to meet a short-term financial necessity, because there is likely to be an incredible amount of scrutiny around this, and if advisers aren’t careful, they could leave themselves open to future complaints from either the original borrower or their family.
This is an area of the sector that I know the regulator is keeping a very close eye on, and it’s therefore important advisers strike the right balance, particularly in terms of potentially vulnerable clients hoping to deal with an increase in outgoings.
I’m not of course saying there won’t be people for whom an equity release/later life lending product isn’t suitable in these times. Far from it.
But we have to ensure as a profession the client is not just aware of the alternatives available to them, but also what they are signing up to with, for example, an equity release product that they may wish to use to pay off debts or meet cost of living expenses.
What debts specifically are being paid off? What are the interest rates on those? Is the client aware they are paying off a short-term unsecured debt and replacing it with a long-term secured one? Do they have other options? Could they pay off the later life loan in the future via access to other assets such as a pension?
One question that came into our recent ‘Breakfast with Stuart’ meeting was also on this very issue, specifically in terms of client affordability right now and in the future. Should we be looking at affordability just in the here or now or taking into account the potential future changes to finances/incomings/outgoings?
It was a question that really answered itself because it’s clear advisers need to look at the affordability as it is now, but also in terms of what could be coming over the horizon. Again, there is a real need to explore what clients might need the money for right now with what their financial requirements could be in the future, and also whether accessing the equity within their home is truly the right option for them right now?
Clients who come to advisers on the back of what is happening in the economy right now of course have a genuine need here. It’s whether that genuine need is best solved via a later life lending product.
In that sense, advisers – as always – need to be uber-careful, adopting a belt and braces approach to advice, recording everything the client says, securing family involvement where possible and acceptable, recording calls, and making sure they mitigate as much of the risk as they can. Ultimately, we want to get to the right outcome for the consumer and advisers will need to show in full detail why they have come to the conclusion that this is best served by a later life lending solution.
Stuart Wilson is CEO at Air Group
