Lifetime mortgages, once viewed as rigid, long-term commitments, have undergone a transformation, with 2024 marking a pivotal year for flexibility in later-life lending.
For many would-be later-life clients, the idea of being ‘locked in’ to a financial product has felt daunting. However, evolving product criteria, coupled with proactive advice, have reshaped this narrative, enabling advisers (and clients) to look at lifetime mortgages much more as adaptable financial tools.
A common concern among prospective borrowers is the fear of being trapped, unable to adapt as circumstances change. Historically, hefty early repayment charges (ERCs) amplified this worry, discouraging advisers and clients from exploring lifetime mortgages even when they could meet their needs.
This is a pivotal year for flexibility in later-life lending
Today, however, providers create a greater number of products that afford the borrower more flexible features. For example, more providers offer lower, or in one case no, ERCs on certain products, granting borrowers the freedom to exit agreements in a much shorter timescale without prohibitive penalties.
This change could enable clients to pivot their financial strategy, away from options such as downsizing, refinancing or simply paying off the loan earlier.
Interest payments
Another crucial development is flexibility around interest payments.
Traditionally, lifetime mortgages relied on rolled-up interest, which led to the compounding of debt over time — a concept that has worried some potential customers.
Now, an increasing number of lenders allow borrowers to make voluntary or regular interest payments, and some plans allow them to do both. By doing so, clients can reduce, or entirely avoid, the compounding effect of interest roll-up, protecting a greater proportion of the equity in their property.
Advisers can be equipped to deliver tailored solutions that address the unique needs of older borrowers
Also, a number of ‘Reward’ products factor in price discounts for those willing and able to pay interest over a fixed and agreed term.
These payment options cater to a diverse range of financial goals, whether a client wants to preserve an inheritance for their loved ones or maintain control over their long-term finances.
For advisers, these advances present a growing opportunity to shift the perception of lifetime mortgages and integrate them into a more mainstream financial planning approach.
The emphasis on flexibility enables much more frequent reviews of later-life lending arrangements with clients — a key tenet of the Consumer Duty.
By engaging with clients on a consistent basis, advisers can ensure the solutions in place continue to meet their evolving needs. This proactive approach clearly benefits both parties.
A crucial development is flexibility around interest payments
For clients, it provides reassurance their mortgage is not a static agreement but part of a dynamic, tailored financial strategy. For advisers, it creates opportunities to provide value at multiple stages, fostering long-term relationships and generating income over time. This recurring engagement — which has felt like a much more natural part of mainstream/residential mortgage advice delivery — helps advisers demonstrate their commitment to holistic and ongoing financial advice.
The role of advice in later-life lending cannot be overstated. With the market offering a growing array of flexible lifetime mortgage products, hybrid products and shifting criteria, customers over 50 should expect their adviser to be able to access a wider range of options. This will ensure any recommendation aligns to the customer’s circumstances, enabling them to make an informed decision.
At the same time, we should not be so naïve as to think this is the situation in the advice space, where we still often have a strict demarcation between ‘mainstream’ and ‘later life’.
Some advisers/firms/networks are put off by what they see as the greater responsibilities/risks/resource requirements that come with providing access to these product solutions, but they are readily available to all.
Lifetime mortgages, once viewed as rigid, long-term commitments, have undergone a transformation
From training and compliance resources to tools for product comparison, advisers can be equipped to deliver tailored solutions that address the unique needs of older borrowers.
For those new to the sector or looking to expand their expertise, such platforms offer invaluable support to confidently enter the later-life lending market.
Paul Glynn is chief executive of Air
This article featured in the December 2024/January 2025 edition of Mortgage Strategy.
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