Nick Lawler, Head of Business Development for DPR, looks at the how the equity release sector has adapted remote business standards to keep the market active during the pandemic and how the sector may start to appeal to new entrants given more consumers nearing retirement are considering the impact on their pensions. This article was published in Mortgage Strategy.
By moving quickly to introduce remote business standards, the later life lending market has remained active. Customer activity has grown sustainably over the last decade as the equity release market has matured to meet the long-term challenges of supporting the UK’s ageing population. The sector is well-placed to help older customers meet future financial obligations and will prove increasingly important to consumers reliant on equity wealth.
A recent survey by Sanlam revealed a 45% year-on-year increase in the number of Brits who fear an economic crash will be a barrier to their retirement plans with a quarter (25%) admitting they are struggling to save enough monthly to hit pension goals. These findings are supported by new figures from Knowledge Bank revealing that ‘Minimum Age at Application’ topped the list of broker searches in the equity release category in April, possibly reflecting that working-age people are considering accessing some of the value they have tied up in their property to supplement their day-to-day finances. Furthermore, searches for ‘Add Fees to Loan’ featured at number three on the list, indicating that people are looking to maximise the upfront cash they can access.
As some mortgage providers choose to tighten criteria and impose caps on borrowing, demand for equity release products is set to continue to grow. New providers will likely consider entering this lending space at speed to take advantage of this market opportunity. Those mortgage lenders failing to achieve internally set lending targets will look for alternative revenue streams. Companies that have traditionally focussed on the insurance and pension sectors will be attracted too. In search of better fund returns and alternative profit-making products, these companies can also take advantage of the new Solvency II regulations that mean that there are capital benefits for this form of diversification.
What do lenders keen to enter the sector need to consider?
They will need the right amount of expertise in-house to move into later life lending. Equity release is a specialist lending area creating different demands to other mortgage product types. Rapidly changing market conditions demand that careful attention is paid to funding targets while the appetite to risk is carefully controlled via the ability to constantly monitor and amend products.
This flexibility to build new product types and ranges can be costly and time-consuming but vital if changing consumer demands are to be met. The shape of lending is likely to change with the focus likely to shift from luxury or lifestyle purchases to more needs-based reasons and day-to-day living costs so criteria changes will be numerous.
Regulatory reporting requirements will need to be met whether new entrants utilise in-house advisers or the more widely used broker channels. Either way, decisions on administration and servicing costs for these routes will have to be made.
We have seen the industry adapt in the face of the current coronavirus as it has ensured the provision of legal advice, replicate face-to-face advice and provided robust valuations. To help manage all these types of changes quickly and accurately, providers will need to commit large resources to managing third party connections, technology and ongoing technical support.
As with mortgage lending in general, equity release providers will need to consider how they manage processes that can be undertaken digitally moving forwards. Technology that reduces costs in the equity release lending process for providers and advisers will be much sought after.
What are the banking platform options?
There are fully managed platforms in the market that can quickly meet all these needs and offer a proven standalone technology solution that can assist not only existing lenders but also lenders planning to enter the equity release sector.
DPR can quickly deploy a fully automated origination and servicing solution, that delivers improved product functionality and enhanced features that cater for broker needs and customer choice.
Already powering existing providers such as more2life and Responsible Lending, by implementing innovations in process efficiency and automation, DPR can ensure that lenders are prepared and able to move into new territory and take advantage of later life opportunities.