The UK has faced much uncertainty in the past few years and weathered many economic challenges. However, later-life lending has remained a resilient industry with a bright future.
As we look ahead, I believe that the value held in property by the current generation of pre-retirees will see them increasingly turn to housing wealth as a solution, particularly as market conditions improve.
This group benefited massively from years of significant house-price increases, in some cases seeing double-digit growth.
Later-life lending has evolved from niche to mainstream
This growth has meant we have seen a change in attitudes to housing more broadly, with more people understanding their property as an investment.
Although there has been a short-term dip in the value of the UK’s homes, they remain one of this generation’s greatest financial assets.
The case for later-life lending
Over-55s in the UK hold an estimated £3.5trn in housing wealth and there is no shortage of reasons why they may look to it for financial help.
The amount of money needed for people to meet their retirement goals has increased significantly in line with the broader cost-of-living crisis. The Pensions and Lifetime Savings Association’s latest update to its Retirement Living Standards found that the cost of a comfortable retirement, which budgets for certain luxuries such as a holiday abroad, had increased by 11% in a single year.
Younger homeowners are increasingly more open to taking out products such as lifetime mortgages
As such, the significant value held in property will likely be very appealing to homeowners who want to improve their standard of living in retirement.
However, it’s not just Gen X who are benefiting from property wealth. Their younger relatives are increasingly looking to older family members for financial gifts, to support things from everyday essentials to a deposit on a first home. L&G Home Finance data shows that almost a fifth (18%) of those taking out an initial-advance loan are doing so with the purpose of using the sum as a gift.
Changing consumer attitudes
We are already seeing later-life lending evolve from a niche option to a mainstream solution, increasingly at the heart of people’s broader retirement planning.
The biggest factor in its emergence into the mainstream has been a shift in consumer attitudes. In the past, products like equity release challenged people’s expectations of the role their home should play.
Although there has been a short-term dip in the value of the UK’s homes, they remain one of this generation’s greatest financial assets
Many regarded their property as an asset that would be passed on as part of a traditional inheritance rather than, potentially, when younger family members could most benefit from the support. Now, the idea of a ‘living inheritance’, provided when adult children may be looking to get on the housing ladder, for instance, has become more normalised.
This has happened in tandem with industry efforts to adopt standards that are reassuring to homeowners, such as the introduction of ‘no negative equity’ guarantees, among other changes. As equity release is a wholly advised product, homeowners are likely to consider it an option with far greater confidence than in the past.
Over-55s in the UK hold an estimated £3.5trn in housing wealth
While downsizing too enables people to access housing wealth, it comes with disadvantages. Homeowners are faced with less space, or potentially having to move out of an area they have lived in for a long time, often leaving an established support network. As the population ages and people spend longer in retirement than previous generations did, the prospect of giving up one’s home is simply less attractive.
Our research shows us that, as well as benefiting from equity release funds, younger homeowners themselves are increasingly more open to taking out products such as lifetime mortgages, and more plan to use them in the future.
Broader mix
Although equity release is not suitable for everyone, the openness of younger homeowners to using life-time mortgages in the future will mean these products are more frequently considered as part of the broader mix of options.
Younger relatives are increasingly looking to older family members for financial gifts
This is in part because lenders have evolved their offerings to serve the changes in people’s needs. Working closely with advisers and listening to their feedback have helped us provide products that truly support the wide variety of customer circumstances.
Similarly, the introduction of the Consumer Duty has already improved the landscape of integrated financial advice and will raise standards in future. I anticipate it will lead to further evolution of products.
Craig Brown is former CEO of L&G Home Finance, now COO L&G Retail
This article featured in the May 2024 edition of Mortgage Strategy.
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