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Equity release referrals in a post-consumer duty world

By now, you’ve likely heard of the Financial Conduct Authority's (FCA) new Consumer Duty principle being introduced on 31 July 2023.  

The new principle requires firms to act to deliver good outcomes for their customers. That means, even if your advice or service proposition is tailored to an individual or small number of solutions, you still require a wider field of vison to understand whether your client may benefit more from products, propositions or services that you don't provide.

For example, if you’re a wealth manager, mortgage broker or generalist IFA working with customers over 55, but don't have equity release permissions, you should consider finding a trusted specialist referral partner. 

What Martin Lewis said about equity release

Equity release is a way for homeowners aged 55 or over to access tax-free cash from their home’s value. It helps people meet their needs in later life to allow for a better retirement, is regulated by the Financial Conduct Authority and comes with a range of protections. 

On last week’s episode of ITV’s Martin Lewis Money Show Live, the topic of equity release was discussed. And in this article, we’ll go through what Martin Lewis said on the matter as well as how Key Partnerships can support you and your clients through their equity release journey. 

How the cost-of-living crisis has changed the way customers use equity release ​​​​​​​

The last three months of 2022 saw a significant shift in consumer behaviour within the equity release market.

Using the product for discretionary purposes, such as cruises and conservatories, has declined and is being replaced by more needs-based uses; repaying an existing mortgage, gifting and managing unsecured debt. And while economic uncertainty and the pressures on everyday spending persist, it’s likely this trend will continue.

So how and why has customer behaviour changed? And what learnings can we take from last year to continue delivering great customer outcomes for today’s clients?

The 4 Rs of Equity Release: Release, Repayments, Remortgage, Reassurance

Equity release (ER) is an increasingly popular way for homeowners over 55 to unlock some of their property wealth. 
 
According to Key’s latest Market Monitor, more than 13,300 new plans were taken out in Q3 2022, which produced £1.5bn of new lending. 
 
In the current economic climate, equity release can be a sensible and flexible way to finance later life needs. But what is it about it that makes it such a sound financial proposition for many? 

Why a lifetime mortgage is no longer a decision for life

Not since 2008 has the UK faced such economic turbulence. Back then, the equity release sector was still very much in its infancy - with a total market value of just over £1bn.1 
 
Fast-forward to today, and in the third quarter of 2022 alone, homeowners unlocked more than £1.5bn of property wealth.2
 
They did so to repay existing mortgages, help support loved ones financially, make home improvements and repay existing debts2, amongst other things - much like those who took out equity release in 2008.3 
 
But while consumers in 2022 share similar motives to those 14 years ago, the vehicle which gave them access to some of their home’s value; equity release, is vastly different. 

Why equity release interest rates are still competitive

Britain hasn’t faced the current level of economic turmoil since the worldwide financial crash in 2008. Even the global pandemic didn’t affect the cost of borrowing, nor the cost of living to the same extent.

In the three months to September, Britain’s economy shrank by 0.2% in what is expected to be the beginning of a prolonged recession.

Increases to the Bank of England’s base rate, GILT rates and high levels of inflation have all played their role in the rate rises we’ve seen across the equity release market of late. As they have, it must be said, across the mainstream mortgage market, too. 

So, how do equity release rates compare to those mainstream mortgage rates, and what can historical rate data tell us about what to expect in the remainder of Q4 2022, 2023 and beyond?

Why equity release could still be a good solution for your clients

Despite recent turbulence in the UK’s economy, there are still more than 300 equity release plans available across the market. The wide range on offer means your clients can still secure competitive interest rates, high LTVs, as well as a plethora of long-term protections to ensure their plan meets their needs throughout later life. 

This short guide illustrates why the product category remains an attractive option for many and provides the information you need to confidently discuss equity release as a suitable financial solution for your clients in today’s economic landscape.

What are the reasons behind gifting through equity release?

Gifting through property wealth has become an incredibly important way for the Bank of Mum and Dad, or indeed, the Bank of Gran and Grandad, to support their family when they need it most. 

The latest data from Key’s Market Monitor showed that 1 in 5 equity release consumers used at least some of their funds to provide a financial gift to their loved ones from July through September 2022. 

So as the cost-of-living crisis tightens its grip on finances, what were the main motivators behind homeowners using their property wealth to support their families? And how do we expect that to change heading into what’s expected to be a very difficult financial winter?

Over 8 out of 10 high-net-worth individuals to rely on property wealth in later life

More than 8 out of 10 high-net-worth individuals plan to use their housing wealth to fund at least part of their retirement. 

Those with investable assets of over £250,000 would be expected to remain somewhat protected from the UK’s current cost-of-living crisis. 

However, according to research conducted by wealth management firm, Saltus, 70 per cent plan to use their property’s value to fund at least a quarter of their later life costs, with a further 14 per cent also expecting to rely on their home in retirement in some way.

As Help to Buy ends, where can first-time buyers turn in a cost-of-living crisis?

Since 2013, the Government’s Help to Buy scheme has helped more than 360,000 buyers.1 But this support has now ended, with applications for the equity loan programme having closed at 6 PM on 31 October 2022. 

This is despite young or first-time buyers currently facing some of the toughest housing market conditions in decades, with house price growth far outpacing wage growth.

Never mind the rate rises, what about the repossessions?

After weeks of fluctuation and uncertainty across the UK’s financial markets, consumers are now starting to feel the impact it’s having on their day-to-day finances. 

Despite the forecast peak Bank of England (BoE) interest rate falling following new Chancellor, Jeremy Hunt’s mini-budget U-turns – down to 5.15% from 5.75%1 – and the pound recovering some of its value, lenders are still taking no risks.

As a result, the average two-year fixed mortgage rate now sits above 6% for the first time in 14 years2. For a customer moving from a 2.24% rate secured in September 2020 – the average two-year fixed rate at the time2 - with a 25-year mortgage of £250,000, this will represent a £532 increase in monthly repayment.3

Inflation & rising interest rates: What does it mean for equity release?

Against a backdrop of rapidly rising inflation and bank base rates, the equity release market has seen a series of upward interest rate movements in recent months. 

With an uncertain economic outlook likely to drive even more price volatility in the near future, what does this mean for the cost of borrowing, the relative attraction of later life borrowing to consumers and the success of the market itself?

Money’s too tight NOT to mention

The UK is currently enduring its worst cost-of-living crisis since the late 1970s. A concurrent boom in equity release enquiries suggests indebted older householders are seeking financial respite from their property wealth.
 

The rise and stall of the last-time buyer

According to recent research conducted, there are somewhere between 3.1m and 4m householders aged 55+ in the UK who plan to downsize at some stage during retirement. That could unlock around £469bn of equity based on some estimates. 

Banking on mum and dad

The surprise and welcome announcement in Chancellor Kwasi Kwarteng’s Mini Budget that there’ll be significant and permanent changes to Stamp Duty will help first-time buyers (FTBs) in particular. 

£100bn owed this year: what options are there to help your clients avoid becoming a mortgage prisoner?

Almost £100bn worth of mortgages are set to mature before the end of 2022. That could leave thousands of homeowners with severe financial concerns this year.
 

Is there a long-term solution to current consumer financial pain?

As those in later life continue to battle the cost-of-living crisis, a rise in credit card interest rates to their highest levels for 24 years is set to add further stress to already stretched budgets among the over-55s. 
 

Covid’s Effect on Retirement Plans: How Equity Release Could Be a Solution

As the country continues its attempt to get back to normality, the true financial impact of the Covid-19 pandemic for those in later life is beginning to bear through.

3 property trends that highlight the relevance of later life lending

Homeownership underpins greater financial security in later life. Over the years, homeowners have built up an asset, so when it comes to their later years, it can be used to help them to with a whole host of different wants and needs.
 

15 tips to increase your website’s visibility

You’ve got the right qualifications, years of experience, a great business, and a beautiful website… but you’re struggling to generate the volume of enquiries you want. Sound familiar? If you are not getting enough enquiries it’s simply because not enough people know about you.

17 tips to work from home successfully

Around the world, millions of people have also been told to stay at home in a bid to slow the spread of COVID-19. But turning your home into your office is tricky, even in the best of times, as trying to separate work and life when they’re both happening in the same space is hard. Fortunately, there are now a huge variety of tips and tools to help you to make the change from office to home successfully.

5 tips for telephone based advice

Recent innovations in the equity release market have meant that we are now able to provide expert advice over the phone.  This can be a huge change to the face-to-face meetings you might be used to.  We have put together some handy tips to help you provide telephone advice to your clients.

Boost your digital presence in 5 steps

Did you know? 70–80% of people research a company online before visiting the business or making a purchase with them.  How your business appears online; it’s what people find when they search for your business or company on the internet.

Equity release conveyancing process

The equity release conveyancing process relies on face-to-face advice and wet signatures as a legal requirement. Since the outbreak of COVID-19 and the associated social distancing and sheltering measures the Equity Release Council has been in close consultation with the wider industry to work to find alternative solutions which will enable cases to complete without a face-to-face meeting with a solicitor.

Five benefits of working together with other experts to provide more holistic later life advice

Later life advice is becoming more complex. As people now live longer than before the lines between work and retirement are blurring, while the financial implications of an extended retirement and the associated care costs can be daunting.

Free Google tools to help your business thrive

Put simply, the world searches on Google. It is undoubtedly the most powerful search engine, handling over 90% of all search queries and dominating the search market.

Gifting now vs. an inheritance later – the pros and cons

As a wealth manager, IFA, accountant, will writer or solicitor you’ll most likely be used to seeing clients coming to you with their concerns about Inheritance Taxes (IHT). These are valid concerns, of course, given that the part of an estate that exceeds the IHT threshold can be taxed at up to a not insignificant 40%.
 

How to build a stronger mortgage market for under 35s

The difficulties young people experience in getting on the property ladder has been widely discussed. It’s clearly bad news for the country’s young people, but the hard time under 35s are having acquiring their first property has wider effects on the housing market and indeed on mortgage brokers, who simply have fewer deals on the table.

Keeping clients informed in a socially distanced world

Whilst I’m sure we all did plenty of planning for the challenges that 2020 would throw at us, nobody could have foreseen something as unique and horrifying as a global pandemic.

Telephone based advice

The nature of business has changed due to the COVID-19 Pandemic. Working from home is now a day-to-day reality for a growing majority of the workforce, and due to the complexity of financial advice, this demand means the way many advisers work will have to adapt as well.

The benefits of early engagement with your client’s beneficiaries

Throughout the lifespan of a client relationship, IFAs work tirelessly to ensure that a client optimises their financial planning outcomes including when it comes to inheritance and estate planning.

Why equity release is increasingly relevant for high net worth clients

Years of solid house price growth in the UK has left many individuals and couples with a very large sum of money locked in their homes. Equity release is, of course, one way of unlocking this accumulated wealth without the substantial disruption of leaving a much loved home.

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