The Changing Dynamics of the Later Life Lending Market

11 March 2019

By Richard Pike, sales and marketing director, Phoebus Software Ltd

There is an undoubted continual focus on the end user experience and application interface within the lending Sector, with the requirements of millennial customers being attributed to driving this.

As the demographics of borrowers entering the qualification criteria for later life lending products change, moving forward it will be interesting to see how the requirements of the “traditional” mortgage market borrowers are duplicated within this ever-expanding sector.

The later life lending market will continue to be mainly intermediary led in terms of distribution, and with an estimated eight out of ten brokers saying they already either have the required qualifications, have referral partners or will consider placing equity release or similar products in the future, this is not going to change for the foreseeable future. This is a fairly significant mind set change from even just a couple of years ago where equity release was seen as particularly specialist.

The onset of the Retirement Interest Only (RIO) market has the potential to impact the distribution landscape to an extent, especially if lenders offer an internal product transfer capability rather than creating relationships to remortgage such cases away. RIOs are offered to borrowers who are nearing the end of their interest only mortgages. It offers them a new product that allows them to stay in their property into retirement until death and, if the loan stayed with the same lender, the transfer process could be made fairly slick and in theory be handled internally.

This could take a change in mind set though, as lenders may of course be pleased to see the so-called risk of RIO qualifying borrowers leaving their balance sheets and moving to a more specialist later life player. However, the renewed focus on borrower retention verses finding new borrowers may have an impact on this thought process and, of course, regulation and compliance will play a large part in any strategy.

Moving forward, post completion borrowers will want to self-serve more and so it is probably a good time for many of the original players in the equity release market to revisit their technology stacks, especially in the area of account servicing. Some lenders have multi-billion pound books being serviced on legacy technology so the time is probably right to consider the efficiencies of looking at new servicing platforms with proven scalability and migration capability. If the platform has a self-service capability and an API framework, it will allow data to move between other third party platforms. This could include the originations or document management platforms.  The cost efficiencies of doing this will be substantial and return on investment recoverable.

There is no doubt that the dynamics of the later life lending market is changing, and established and new players need to consider change. The market will react to the requirements of the sector; it is important to consider both distribution and servicing strategy to prepare for what the future will bring. 

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