New CML research reveals a need to narrow the gap between advice 'silos' for later life borrowers
New research undertaken for the Council of Mortgage Lenders in conjunction with the Building Societies Association (BSA) says that it is vital to adopt a more joined up approach to delivering advice to older borrowers, and to narrow the gap between mainstream lifetime mortgage advice silos.
Households headed by individuals aged 55 or over form a significant part of the market numbering approximately 11.8 million (46% of all households), with over 55s holding £6.4tr of wealth and £2.5tr of property wealth. Lending to older borrowers grew in 2016 driven by remortgages and lifetime mortgages.
The current advice framework
The current framework for delivering guidance and advice to those seeking to borrow money against their property as they approach and enter retirement operates largely in two distinct silos:
- Lenders and intermediaries who lend and provide information and advice on residential mortgages.
- Lenders and intermediaries who lend and provide information and advice on equity release products (mainly lifetime mortgages).
The report suggests the two markets have very different attitudes towards borrowing in later life. Residential mortgage lenders have traditionally viewed borrowing as a means to accumulate equity and a retirement free of debt. The lifetime mortgage lenders see borrowing in later life as a means to help customers extract value from the accumulated equity.
Advising older borrowers can be time-consuming and expensive. Borrowers who may need to move between the two markets or who may wish to weigh up the advantages and disadvantages of each market find there is no single obvious place to go and no joined up framework for addressing their needs. This needs addressing, with government best placed to facilitate.
In addition, the report suggests consumers are maybe frustrated at barriers to borrowing, some of which can seem to them unfair. They also perceive that the products available do not fully meet their needs and that products can be difficult to compare and understand.
The researchers makes the following recommendations in their report:
Helping consumers navigate the market: Consumers need help navigating the full market with access to information, guidance and advice on all products that may be suitable for them.
- The new single public financial guidance body (SFGB), due to be introduced from Autumn 2018, should explore ways of increasing the provision of and signposting to fuller information sources available to older consumers. Crucially, this needs to be integrated with pension guidance.
- Guidance services and industry should develop better tools to help compare and evaluate later life borrowing options.
- The industry should encourage and facilitate an expansion of advice services by advisers to include both residential and lifetime mortgages. This includes further exploration of the reasons why some advisers with regulatory permissions to advise on lifetime mortgages choose not to use them. Is this down to increased conduct risk concerns, and/or for ‘business volumes versus effort’ reasons?
- Lenders and advisers operating in this market should consider how best to deliver a more joined up approach to advising later life borrowers.
- Back-office systems that support advisers across both residential and lifetime mortgages for older borrowers should be developed to help improve information flows and reduce the cost of the sales process.
- The Financial Conduct Authority (FCA) and industry should continue to work together to better understand the economics of delivering advice to older borrowers and explore which incentives can be aligned to support more integrated advice.
Designing products to support retirement:
- Regulators and residential mortgage lenders should further explore how they judge affordability in retirement, taking account of income from investments, savings, DC pensions and state benefits.
- Attitudes towards repayment mechanisms should be adapted to include sale of property and/or transfer to a lifetime mortgage.
- Lifetime mortgage lenders should continue to build more flexibility into lifetime mortgage products to allow partial or full early repayment of interest and capital with lower costs for doing so.
June Deasy, head of policy, CML said:
Older people have to make complex, often inter-related decisions about a range of financial services products, from pensions, wealth management and mainstream mortgages, to equity release. More flexible ways to borrow and use housing equity throughout life will play an increasingly key role in how these decisions are made.
With advice regimes segmented due to different regulatory conduct rules and permissions, different types of advisor; and different product heritage, CML has long called for a smoother experience for consumers. The research shows that consumers can see a disconnect between their need and the service provided, and a desire for clearer signposting to their options. CML believes that government is best placed to facilitate this signposting role, as it develops its Single Financial Guidance Body.
CML remains committed to working with the industry, regulators and consumers themselves to address the associated challenges and opportunities of later life lending.
Jackie Wells, Jackie Wells & Associates, said:
There are many indicators that demand for borrowing in later life is growing, in particular as a form of financing retirement. However, this project has revealed that consumers struggle to navigate the market and that lenders and advisers generally operate in silos that prevent consumers comparing across the whole market.