Specialist Finance Introducer

What equity release can really mean

Stuart Wilson

CEO, Air Group

For a number of years, I have talked about the UK equity release market in terms of multiple billions of lending. This was before one might also have added in the wider laterlife lending sector and what it might be able to achieve, specifically with the introduction of RIO mortgages and more mainstream offerings with higher maximum ages.

While I would not say I was laughed at, there was certainly a degree of scepticism about my assessment. Of course, the critics said I was always going to over-value the sector because my business was immersed in it; I was bound to talk it up when the reality was this would always be a very small, niche marketplace that was essentially a last resort.

For some people, that assessment remains, and if you look at equity release/later-life lending in the context of the wider residential marketplace, then of course it is still looking like a very small piece of the puzzle. But it is growing, and is going to continue to grow, and that bears thinking about if you’re an adviser not currently involved in it.

You only have to understand that the fundamentals I have always believed were there to induce greater levels of activity are not just still in existence, but are increasing in relevance every day.

The latest figures from the Equity Release Council show lending for the first quarter of 2022 at £1.53bn; lest we forget, until very recently the sector would have been overjoyed to have secured that level of business in a year, let alone in a three-month period.

The number of new plans agreed in the same quarter were up 21 per cent on the same period a year ago, while we also saw a new quarterly high of 23,395 new or returning equity release customers within the same timeframe. Again, many of us later-life stakeholders have been around long enough to consider those numbers a good yearly performance, so it will not take much to consider just how far we have come in such a short space of time.

That quarterly figure puts us on a yearly run-rate of over £6bn for 2022, and again, without wanting to blow my own trumpet, go back to some opinion pieces I have written over the last couple of years, and you’ll see that I’m predicting big opportunities within the later-life space, which would take us up to and beyond that figure, toward double-digits. In my opinion, we are motoring toward this.

This is, by the way, not my attempt to look like Mystic Meg or the later-life lending equivalent of Nostradamus. I am not any kind of industry soothsayer, but what I have been able to see – as many other stakeholders have also witnessed – is a changing environment that places the residential home as one of the go-to assets, if not the only one, for many older homeowners.

It’s not so much a perfect storm of conditions, but more the umbrella handily available to help a growing number of homeowners to ensure they are not caught out in the rain. And in so many facets of life for older people, the chances of getting rained on have simply grown and grown.

For many years, we have talked about releasing equity for a whole variety of reasons – to pay off debt, to pay for long-term care, to provide for family members and the like, but one reason we might not have realised was going to be so important was simply to pay for the cost of living.

Again, it’s not something those active in the sector have overlooked. For many years, I’ve talked about pensioners sat in homes worth hundreds of thousands of pounds but still feeling unable to put their heating on throughout the winter. This gets to the very crux of being asset rich/cash poor, and as the year has progressed this underlying need has grown in importance. 2022 will represent an incredibly difficult year for many older homeowners, particularly those already retired, with fixed incomes, wondering just how they will pay for more expensive energy bills, let alone the increase in the cost of living evident across all manner of items, particularly petrol, but also food, clothing – you name it.

With inflation likely to top 10 per cent very soon, I don’t need to point out what that means for pensioners, and you’ll already have heard many stories about the extremes some people are going to in order to stay warm and fed. Now, of course, equity release or laterlife lending is not going to be suitable for everyone, but I guarantee it will be suitable for some, and it may well be suitable for those most in need.

This, I’m afraid, is not a problem that is likely to go away anytime soon, either. The government has said it can only do so much; the Bank of England the same. However, what we might have is a significant number of consumers who will have benefited from increased house values, particularly over the last year, but probably over a much longer period. Many may be unencumbered and therefore may be in the right position to access equity without it having the impact they think it might in terms of inheritance amounts or of what equity they may well need to ‘give up.’

Overall, our sector is there to help people in such situations – to make use of a sizeable asset that, used correctly, can make their lives much easier, or simply allow them to do what they want in their later years. Whether it is to go on a cruise, or simply pay their bills, the option is available to do this, and as a sector we have to continue to espouse this message, to assuage any concerns, and to deliver the readily available solution that will help many, and ensure continued growth for this vitally important market. M I

A future in specialist property finance

Adam Tyler

executive chairman, FIBA Ltd

As we all are affected by the cost-of-living crisis sweeping across the UK and the rest of the world, we have seen many lines in the national press dedicated to the fragile state of the economy. But what about the commercial lending space? How is this going to react for the remainder of 2022 and into 2023? We all know about the record numbers delivered over the last two years both from brokers and lenders in specialist property finance.

This regards not only enquiry levels, but completions in bridging, buy-to-let, development, and commercial property finance from a number of different lenders. There have been a number of new additions to the lender community, and this continues. We have also lost some, a few more noticeable than others, but the capacity is there and available to cope with future opportunities.

But what can we expect from the specialist property finance market for the remainder of the year and into the first half of the next? The lender community is well funded; there is still confidence from the capital markets in the sector. The ongoing situation will, of course, be determined by the market – the need for housing must remain strong to fuel the need for short-term and development finance. The much talked-about repurposing of retail units to other uses is still a factor despite the return to offices, albeit still mainly in the private sector. All of this will depend on the confidence of our property investors, some of whom have in recent times built good portfolios both in residential and commercial real estate.

There is the very real threat of a full quarter of negative growth in the economy, and we all know what that would mean. Whilst this may not be too damning for our sector directly, it has other connotations within the mindset of the buying public. This in turn could be self-perpetuating, so nurturing and caring for our clients is even more important.

Whilst we have all the components in place and at FIBA, we are adding to this through the expansion of the specialist property finance club and the education programme. However, questions remain: How is the market going to perform for the next 12 months and beyond? What will our market look like, and is there enough business for the growing number of brokers, packagers, and lenders already operating in the specialist property finance market?

Just a few facts to consider: In Q1 2022, £14.5bn of commercial property was traded; this was down 19 per cent from an exceptionally strong Q4 2021, which means the rolling annual total hit its highest level since Q4 2018 at £60bn. The UK Construction Index declined in April from the previous month. It is still indicative of strong growth in the building sector, but the rate has definitely slowed over the period. Of course, a continuing rise in material costs, an uptick in credit policies, and global supply-chain problems are among some of the downward pressures that may affect future demand.

These are just a few highlights that must be taken in the right context and against a backdrop of negative global economic drivers that seem to be unrelenting – as one seems to end, we are faced with the next. One thus has to admire the resilience and tenacity that have been shown in the maintenance and building of a thriving specialist market against an unprecedented backdrop.

In conclusion, there is a great market for specialist property finance, with a number of positive factors for the broker market to consider. Brokers and lenders will still require innovation and knowledge to shape the right deal for the right project within the right property for the customer. But this is how our industry has adapted and grown over the last 25 years – and it will continue to do in the future. M I