A New Era for Later-Life Lending: Opportunities and Challenges Ahead

The later-life lending market has faced significant challenges in recent years, with new-plan sales falling by almost half in 2023. However, with the introduction of new hybrid products and a wider range of finance options, there is hope for a better year in 2024.

According to the Equity Release Council, there were just 26,119 agreed new plans in 2023, a tumble of 47% from 2022. This decline was largely driven by the Bank of England’s base-rate spikes, which saw the interest rate rise from 0.1% in December 2021 to 5.25% last August.

The impact of interest rate hikes on later-life lending

However, many brokers believe that the key to getting the sector back on its feet is lenders offering the sort of loan-to-value lifetime deals they did three years ago. In 2021, lenders typically offered a 55-year-old a maximum LTV of around 33% on lifetime products; today that figure is around 24%. For a 75-year-old, maximum LTVs were around 55% and are now typically 48%.

The changing landscape of later-life lending

One expert, Forsdyke, operates at the wealthier end of this market and believes that brokers should consider a range of options such as retirement interest-only, as well as bridging or second charge loans for older borrowers who are downsizing but may need to move into their new home before the current one is sold.

The role of retirement interest-only in later-life lending

Later-life property loans are now available from age 50, with upper age limits stretching to 85 and beyond, enabling brokers to consider a regular mortgage, or a hybrid home loan that allows borrowers to transition to a retirement interest-only mortgage or lifetime loan at a later date.

The benefits of hybrid home loans in later-life lending

Payment term lifetime mortgages (PTLMs), available at 50, require interest-only payments until retirement, or age 75. From that point, borrowers can allow interest to roll up, giving them access to larger loans than traditional lifetime mortgages.

The advantages of payment term lifetime mortgages

More2Life managing director Ben Waugh is confident that the equity release sector must take a giant step forward this year. He points out that new hybrid products will play a part in any new growth in the later-life market over the coming 12 months. These new products allow borrowers to make payments on loans, which in turn enables lenders to offer higher LTVs or discounted interest rates.

Ben Waugh on the future of later-life lending

Some of these deals accept borrowers at age 50, rather than the standard 55, tempting customers who may want to top up their pension pots.

The role of later-life lending in pension planning

Waugh points to Legal & General Home Finance’s PTLM, launched last November as a “gamechanger” in the hybrid later-life market. It offers borrowers, aged from 50, a tax-free cash lump sum in return for fixed monthly interest repayments up until retirement, or age 75, whichever comes first.

The benefits of Legal & General Home Finance’s PTLM

Customers can then make voluntary repayments in retirement if they wish; but, unlike a retirement interest-only mortgage, they’re not required to make payments for life. Any unpaid interest is added to the total amount owed and is typically repaid from the sale of the home when the customer dies or moves into a care home.

The flexibility of voluntary repayments in later-life lending

In conclusion, the later-life lending market faces significant challenges, but with the introduction of new hybrid products and a wider range of finance options, there is hope for a better year in 2024. Brokers and lenders must work together to offer customers the best possible deals and ensure that the sector enjoys a better year than it experienced in the previous 12 months.

The future of later-life lending