Navigating the evolving landscape of later life lending with Royal London Equity Release
The later life lending market is undergoing a significant transformation, driven by demographic changes, regulatory developments, and technological advancements. For equity release introducers; mortgage brokers, wealth managers, and financial advisers, staying informed about these shifts is crucial to providing clients with the best possible support. Understanding the evolving market landscape, knowing where to refer clients to specialist advisers, and recognising new opportunities for using equity release products are key to serving clients effectively.
Demographic shifts driving market demand
The UK’s population is ageing, with more individuals reaching retirement age and living longer than previous generations. This extended longevity, while a positive trend, presents financial challenges for many retirees who find that their savings may not be sufficient to sustain their desired lifestyle. As more people retire later and with mortgage debt still outstanding, the demand for financial products that can supplement retirement income is growing rapidly.
The recent increase in the State Pension age from 65 to 66 has further exacerbated financial pressures on those approaching retirement. This shift has led to a higher employment rate among 65-year-olds, but a 2022 report from the Institute for Fiscal Studies shows that it resulted in a significant drop in average incomes for this age group and a corresponding rise in the poverty rate. Many older individuals are now facing increased financial strain, creating a growing need for later life lending solutions that can help them manage their obligations.
Additionally, the working-age population reporting work-limiting health conditions is on the rise. Approximately 3.5 million individuals aged 50-64 are economically inactive , many of whom are waiting longer to receive their state pension while struggling financially. For these clients, equity release products can provide much-needed financial relief, helping them bridge the gap until they receive their State Pension.
Diversification and product innovation
For introducers, recognising the diversification within the later life lending market is essential. The range of products has expanded significantly, offering more tailored solutions to meet clients’ varied needs. While equity release remains a core component of later life lending, other products such as Retirement Interest Only (RIO) mortgages and hybrid solutions, which combine traditional mortgage features with equity release, are gaining traction. These products offer greater flexibility and customisation, enabling introducers to better match solutions to clients’ specific circumstances.
The Financial Conduct Authority (FCA) has also played a critical role in shaping the market by implementing more stringent guidelines to ensure that later life lending products are sold responsibly, with a strong emphasis on consumer protection. As introducers, understanding these regulations is vital to ensuring clients are fully informed of the risks and benefits associated with these products.
Technological advancements have further influenced the market, making it easier for introducers to access information and compare products. Technology has enhanced underwriting processes, allowing lenders to offer more flexible and tailored products. This shift towards greater customisation and accessibility means introducers can now provide clients with more personalised advice, helping them navigate the complexities of later life lending with confidence.
Significant product innovation has also occurred in recent years, particularly in terms of flexibility. Features such as drawdowns, shorter early repayment charges, voluntary overpayments, and inheritance protection options have become more common. These innovations allow clients to manage their borrowing more effectively, ensuring they can achieve their financial goals while preserving wealth for future generations. As introducers, staying informed about these developments is crucial to providing clients with the most up-to-date and relevant advice.
Addressing market challenges and opportunities
While the later life lending market has experienced substantial growth, it has also faced challenges over the past two years. Inflation, rising interest rates, reductions in loan-to-value (LTV) ratios, and the cost-of-living crisis have all contributed to a decline in market activity. Borrowers are increasingly cautious, opting for smaller initial advances with larger amounts held in reserve.
However, the market remains robust, with new entrants driving competition and product innovation. Despite the decline in the number of Lifetime Mortgages, due to sharp interest rate rises following the mini budget of 2022, underlying demographic trends suggest that demand for equity release and other later life products will continue to grow. As introducers, this presents an opportunity to expand your offerings and meet the needs of a growing client base.
Royal London is well-positioned to support introducers and advisers in navigating this evolving landscape, having wholly acquired Responsible Lending in November 2023 and rebranding it as Royal London Equity Release. As the UK’s largest pension, life, and investment mutual, we are committed to leveraging our expertise and market reach to offer innovative solutions that address the needs of both advisers and consumers.
The future of later life lending
Looking ahead, property wealth is set to play an increasingly important role in retirement planning. As final salary pension schemes become less common and life expectancy continues to rise, many retirees are finding that their pension income alone is insufficient to meet their needs. The current full state pension is £221.20 per week, equating to £11,502 per year—below the £14,400 needed by a single person to achieve the minimum living standard, with couples requiring £22,400. In the UK, property wealth has been rising, with over-65s holding £2.6 trillion worth of housing wealth and over-50s holding 78% of all privately held housing wealth . With almost three quarters of pensioners owning their homes , the demand for equity release and other later life lending products is likely to increase as more people seek to unlock the value of their property to fund their retirement.
In 2024, Royal London Equity Release launched its first self-funded equity release product, reflecting its commitment to the sector and confidence in its future growth. By offering a comprehensive range of solutions tailored to the evolving needs of the later life lending market, Royal London Equity Release is ensuring that introducers and advisers have access to innovative and flexible products that meet the diverse needs of their clients.
Shifting perceptions and expanding opportunities
The perception of equity release and other later life products is evolving; products are now increasingly recognised as flexible, regulated options that can be an integral part of broader retirement planning strategies. There is also a growing willingness among clients to use later life mortgages to fund retirement, support children and grandchildren financially, or maintain their lifestyle through travel, home improvements, or healthcare costs. For introducers, this presents an opportunity to expand services and meet the evolving needs of clients.
In conclusion
The future of later life lending is bright. With ongoing innovation, a growing emphasis on sustainability, and a commitment to consumer protection, Royal London Equity Release is poised to play a leading role in shaping the future of this dynamic market. We are dedicated to supporting introducers with the tools, training, and products needed to help clients achieve their retirement goals, ensuring that you can continue to provide the highest level of service in an ever-changing landscape.
By staying informed about market developments and embracing new opportunities, equity release introducers can play a crucial role in helping clients navigate the complexities of later life lending, ensuring they achieve their financial goals and enjoy a secure retirement.
