The Later Life Lending sector is making positive changes for homeowners, says David Forsdyke, Head of our Later Life Finance service. Here, David delves into the reasons for the change and how it’s helping homeowners over 50.

The need for innovation

Until recently, options open to older homeowners who needed to extend their borrowing beyond retirement were limited. Lifetime mortgages have been around for over 20 years, allowing interest to roll-up, or compound, so borrowers don’t need to make regular mortgage payments. Instead, the remaining equity in the property absorbs the interest, typically without a term.

While lifetime mortgages have served a number of different purposes over the years, the needs and circumstances of homeowners has changed since the new millennium. New needs and objectives have emerged and we are seeing product innovation which accommodates to this change.

In 2022, all lenders introduced the option to make penalty-free partial repayments, allowing borrowers to mitigate the impact of compound interest and cut costs if they have surplus funds. Last month, we saw the introduction of Payment Term Lifetime Mortgages which offers access to mortgage funds that might otherwise be out of reach. It also brought the earliest age down to 50, making these products ‘Mid Life’ rather than ‘Later Life’ Finance.

Savings for borrowers

This month we see yet another innovation. One Lifetime Mortgage lender is offering discounted interest rates for borrowers who make regular payments. If the borrower can pay 50% or more of the interest over the next 5 to 15 years, they could make significant savings. Here are two examples;

• A 65 year old borrowing £195,000 against a £1million property would be offered a lifetime mortgage at 5.79% fixed for life. However, if they pay 100% of the interest each month for 15 years they would benefit from a 0.45% discount. This brings the rate down to 5.34% and saves £877.50 interest each year, or £13,162.50 over 15 years.

• A 70 year old borrowing £78,000 against their property worth £300,000 would normally be offered a lifetime mortgage fixed at 5.79%. However, if they pay 50% of the interest each month for the next 10 years they would benefit from a 0.1% discount, saving £1,950 over 10 years.

New standards

These innovations and incentives are designed to encourage borrowers to make payments rather than allowing the interest to roll up, which will only work in practice if it is affordable and does not impact on other areas. This means advisors need to discuss and explore income, expenditure, and future changes with clients before recommending new products. Unfortunately, not all advisors are working to this level of diligence.

Last week, the Equity Release Council introduced a significant update to their standards in order to address this gap. Members of the Council must now adhere to the new standards, which are designed to protect and enhance the outcomes for customers. This will, I hope, ensure the industry delivers the very best advice to customers over 50 who are considering the growing range of mortgage products available.

If you are looking at your options, or have a client who is, it’s important to speak with an advisor who will discuss all options available to you. Here at Knight Frank Finance, we are proud to advise on everything the market has to offer. Please get in touch on 01483 947764 or email laterlife.finance@knightfrankfinance.com