Equity Release review

Challenges will remain in 2023, but so will strong demand for advice

Stuart Wilson

CEO, Air Group

It seems an odd thing to be writing, but 2022 is nearly over. How did that happen?

It has almost crept up on us, and part of me can’t help but feel that, at times, 2022 had the feel of a year that was never going to end, such were the twists and turns and undoubted challenges that it brought, particularly over the last few months.

However, while the later-life market – indeed, the entire mortgage market – has had a stormy feel to it recently, there are positives to hold onto, particularly as we move into the new year and beyond.

If advisory firms and the businesses that support them are currently fishing in somewhat stormy waters, there are only two real options available to them: either they return to port and wait it out, or they keep on fishing. All firms I speak to will continue to do the latter and will make the most of the opportunities that exist.

For a start, it’s an obvious point to make, but we’re clearly in a different interest rate environment now. Premini budget rates beginning with a five were once common, and that’s no longer the case – but compare today’s rates to what has traditionally been the norm in our market, and the situation doesn’t seem so bad at all.

Also, as I’ve said many times before, when it comes to equity release in particular, but other types of later-life lending as well, the rate is what the rate is, and the customer does not go away simply because the price of the product has changed recently.

There is also a related point for advisers to consider now, and it is the shift in the type of customer we are seeing, and are likely to see in the near future.

It’s very obvious that the ‘need’ customer is much more prevalent right now than what we might have seen in a lower-rate environment, which was more appealing to an ‘aspiration’ customer. Let’s be frank: if you are a homeowner who doesn’t need to borrow, then why would you do so right now? The likelihood is that you will wait it out until borrowing seems more favourable.

However, for the need customer, that’s not an option. Their need is now, and they must work within the market situation as it is now. If you are, for example, coming to the end of your interest-only mortgage term, and you need money to pay off the capital, then you can’t simply wait for what might be a better time to secure that finance.

It’s interesting that, on returning from holiday recently, I had a look at some of the Air customer/client statistics, and it was obvious that while the number of unique customers had dropped, there were far more serious enquiries within the system.

In any given period, as advisers will know, you tend to get a fair number of what I call tyre-kicker customers enquiring about what is available to them, but with little intention of following through with a case, unless the options are staggeringly good and far beyond their initial expectations.

Those tyre kickers have certainly dropped in number recently, and instead – and this is good news for advisers – we are seeing enquiries grow from those who are deadly serious about their current situation and the financial options that might be available to them via later-life lending.

As was pointed out at a recent “Breakfast with Stuart” meeting, for these customers a drawdown product can be very appealing, as they don’t necessarily have to take all the available equity in one go. Plus, of course, basic protections in the equity-release space, like the No Negative Equity Guarantee, are also invaluable to such customers, especially if they are fearful of house values falling, as some are suggesting might happen in the short-term.

Add to this the growing knowledge of equity release/later-life lending options and a greater acceptance from the public that their home is an asset that can be used in later life, and given the financial and economic situation, it will not be a surprise to see more consumers looking for advice in this area – particularly if inflation remains high, as expected, and if cost-of-living increases are with us throughout a longer-than-anticipated recessionary period.

In that sense, 2023 is still likely to be an incredibly active time for later-life advisers, with demand remaining strong and – in my view – developing across many more people in, or reaching, later life. Of course, we need to marry this demand with product supply, and it is to be hoped that, with markets having calmed down recently, we will begin to see products reappearing and rates moving in the opposite direction.

Advisers are likely to find their services required more than ever. We may be moving into a different environment, but professional advice still remains a must-have here. As always, we’ll be here to help you make the most of it. M I