New trends, high debt levels and low pension savings signal changes in demand
Later Life products are expected to see a surge in demand after a new report concluded that high levels of debt and a lack of pension savings make it increasingly likely that older homeowners will need to borrow against the value of their property to make ends meet.
This fits with the uptick in Later Life mortgage transactions seen at Henry Dannell since the end of the summer as more borrowers decide it is better to proceed with their equity release plans than continue to wait for interest rates to drop.
The report, by the Equity Release Council, also found evidence of changing trends among lifetime mortgage customers in the form of a shift in borrowing patterns during the first half of 2023.
Comparing data from a year earlier shows average new customers of a lump sum or drawdown lifetime mortgage withdrawing a smaller amount of money and a smaller percentage of their overall housing wealth. But this is unlikely to be simply down to customer caution, as we have also seen maximum loan-to-value (LTV) reductions as providers adjust to stubbornly high interest rates.
What does this mean for mortgages?
Lenders remain keen to lend but are constrained because 15-year gilt yields remain elevated, meaning fixed rates on Later Life products are only seeing limited reductions. LTV rates also continue to be suppressed to mitigate the risk of lenders being left with a repayment shortfall, as lifetime mortgages include a no negative equity guarantee, and payments are voluntary.
However, other positive improvements are in evidence across the provider market.
With the more2Life Apex Lifetime mortgage, for example, the early repayment charge period has now been reduced to four years. And the Pure Heritage Freedom plan reintroduced the ability to make either 20 per cent or 40 per cent repayments during any 12-month period, offering a possible alternative to using a bridging loan where repayment is anticipated. Livemore, meanwhile, is offering the lowest available fixed rate for retirement interest only (RIO) deals at 6.68%.
Looking to the future
Current property values could fall further, because of the continued fallout from soaring interest rates over the past year. And a near-term drop in the base rate is far from certain, which could translate into static interest rates. That makes now a good time to consider a drawdown plan based on your home’s current value to raise a small initial sum as well as allow for additional funds to be drawn if rates become more favourable. Waiting for rates to fall before acting, however, runs the risk of not being able to secure your desired amount because the value of your property has fallen.
As always, the Henry Dannell team is here to provide expert advice and guidance which will enable you to make informed decisions. Get in touch with us to find out more about our offering and how we can help you achieve your mortgage goals.
Please note: Later Life product options include Retirement Interest Only and Lifetime mortgages. To understand the features and risks, always obtain a personalised illustration.