Nick Lawler, Head of Business Development for DPR, looks at the opportunities that banking technology can support the equity release market to manage growing demand. This article was published in Mortgage Strategy.
As with all financial lending during the COVID-19 pandemic, equity release has been impacted. Although borrowers are confused about what the crisis means for them, it is still essentially a needs-based product, and many will still want to access equity in their property. It could be argued that the widely held reasons to use property wealth, to provide funding assistance for children or grandchildren on to, or up the property ladder or for funding retirement are more relevant now than ever before.
Growing consumer interest from those nearing retirement
This relevance is set to grow further still once we exit the lockdown measures currently in place. Consumers may find that their income has dropped significantly due to the crisis and borrowers’ circumstances will become more complex with increasing numbers seeking ways to raise funds. Plunging stock markets and under-performing funds will therefore leave some mortgage holders and mortgage prisoners approaching retirement considering the equity release option. Accessible at age 55, equity release could offer a lifeline to homeowners once they have received the proper advice. Interestingly, the Knowledge Bank criteria activity tracker reported that broker searches for the minimum age at which lenders would allow equity release had already surged in February, hinting at demand from younger clients considering alternative options.
Increase of interest in this sector is expected to grow
It is not just consumers who will be affected by the crisis. Ever-tightening lending criteria and eligibility rules will see mortgage lenders and advisers that are unable to achieve internally set lending targets search out alternative revenue streams. Not uncommon in an economic downturn, this focus on alternative sectors of the mortgage market will lead to increasing numbers of lenders and advisers entering the equity release arena. This increasing competition could see criteria being relaxed as has already occurred with lenders allowing AVM’s on higher LTV mortgages. Further loosening of criteria may follow as lending targets are chased down.
According to the Spring 2020 Market Report from the Equity Release Council, it saw a rise in the number of firms becoming members last year.
“The increasing diversity of firms in the market reflects the diverse range of consumer needs which property wealth is helping to address,” said David Burrowes, Chairman of the Equity Release Council.
Solvency II regulations also mean that there is really no cap on funding in the sector and it has become a more attractive options for insurance and pensions companies.
More product choice for borrowers
The number of equity release product options on the market has also risen and exceeded 300 for the first time – reaching 313 in January 2020, while the average equity release rate fell to a record low of 4.48%, with two-in-five products charging less than 4%.
Social-distancing has meant the sector has needed to adapt working practices
Some standard methods employed within the sector have already been amended. In order to enable legal advice to be provided remotely during the period of social distancing, the Equity Release Council has temporarily removed the requirement. Instead, remote legal advice and processes using digital solutions, telephone or video facilities are being used, with verbal consent replacing a wet signature in some cases. This will enable independent legal advisers to continue fulfilling their key duties to consumers who are considering the option of equity release, ensuring that the best possible and safest support is provided. Whilst only temporary, this move highlights the importance of the adaptability that technology can offer and provides a future view for the sector.
Those that have embraced technology are able to react and adapt faster
Like other areas of mortgage lending, equity release providers will need to consider how they balance processes that can be undertaken digitally moving forwards to work for both those that are digitally savvy and equally how vulnerable customers are protected as new technology will drive innovation in the sector. Technology in the shape of a proven technology solution such as that offered by DPR can assist lenders and advisers in navigating clients through the equity release product process and help them find the most suitable product.
According to Equity Release Council analysis of UK Finance Mortgage Trends, when comparing activity within the mortgage market, the lifetime mortgage sector has been the fastest growing of recent times.
Whilst the hard work will continue to enhance the customer experience, there is clearly no one-size-fits-all approach. With providers having to adapt to a new way of remote working what has become evident is that providers with automated solutions and cloud hosted software have been able to quickly react and adapt. The operational efficiencies provided by automation will play an increasingly greater role in helping providers and advisers meet these needs and importantly, win and retain clients when these needs change.