If we wanted to look at major themes that have emerged over the last year or so, and that are likely to significantly alter the mortgage market for older borrowers and later life lending specifically, then I would suggest affordability assessment is perhaps the key one for advisers to be focused on.
Of course, many already are doing this.
However, within a Consumer Duty environment, and with lenders now offering more products that cater for clients who can make payment contributions – however small – each month, it has become even more important not to simply default to a traditional roll-up lifetime mortgage product, or to product transfer (PT) or remortgage a mainstream mortgage to another mainstream product, which might not be suitable for an over-55 borrower.
At More2life, we’ve certainly recognised the need for product evolution across a number of areas. Particularly in terms of offering products that cater for those who can and want to make payments, providing further benefits particularly in terms of lower rates and potentially lower early repayment charges (ERCs).
The prevalence of servicing interest
Our latest variation on this theme, which has recently launched – Flexi Interest Reward – is the next generation of such products. It is a lifetime mortgage based on assessing client affordability, with rates determined by their ability to make payments each month over a set period and uniquely based on live pricing.
Introducing Lloyds Living
Sponsored by Halifax Intermediaries
It’s clear from client modelling these products – which offer a price discount based on how much the client can pay each month – that there is a real benefit here with the ability to significantly reduce the client’s borrowing over the loan term, even at the lower end of the scale when it comes to monthly payment amounts.
Such Interest Reward products are not just the preserve of More2life, of course. There are a growing number of later life lending products that allow the borrower to pay a certain amount of interest each month.
With a wider array of choices, it’s perhaps even more important advisers are delving much deeper into whether it is affordable for the client to make payments – at any level.
Considering this at the point of advice
From our understanding, we’re seeing increasing but relatively low numbers of advisers sourcing later life lending products via client affordability, when this really needs to be happening for each and every case where some sort of payment could be made.
Without testing for affordability, how can the adviser be certain the product they’re recommending is the best outcome? If there’s no testing of affordability, then not all products available are going to be visible, and there will always be uncertainty about whether the product recommended is truly the best for the customer.
Part of our focus in the later life space has been around the ways and means by which affordability can be assessed. An income and expenditure form only takes 10-15 minutes to complete and, once advisers work through this, they’ll have a much clearer understanding of the client’s circumstances and the ability to access many more products and to achieve better outcomes.
This feels particularly important for those current mainstream borrowers who now qualify for a whole range of later life lending products – that, up until the point they turned 55, the adviser wouldn’t have even considered because they were not eligible.
A bigger pool of later life borrowers
It now feels increasingly important for advisers to run the rule over client affordability in the context of potentially having access to those later life products, particularly the Interest Reward options, available to them.
After all, this client demographic is only going to grow.
On that point, I read some recent results from a Freedom of Information (FOI) request by Quilter from the Financial Conduct Authority (FCA) that revealed there has been a significant rise in people taking out mortgages with terms of 35 years or more, which, given the average age of these borrowers, is going to take them well into their 70s.
From age 55, these clients will also have access to later life lending options, and that needs to be considered.
The assessment of affordability is something of a shift for later life advisers, but as a necessary part of the mainstream, it is now a necessary part for all borrowers.
Only by doing this effectively can advisers really drill down to the right option, and, of course, with wider product choice for the over-55s, it’s vitally important they are assessed in the context of these solutions alongside all others.
It makes sense for the adviser, and it certainly makes sense for the client.
