Don’t be an ostrich – the importance of assessing affordability
By Hodge Bank
Ok, ostriches don’t actually bury their heads in the sand to avoid their problems, that would be daft, right? But sometimes people do. We’ve all been guilty of avoiding the unfamiliar, even when it could be our best option.
So, when it comes to specialist lending, if assessing affordability is something you’d rather steer clear of, we dispel some misconceptions of alternative later life lending options, so you can be sure your head is firmly covering all bases for your client (and remains above ground).
Later life lending: a flourishing landscape for advisers
The size of the later life lending market is growing. Currently worth around £153.6bn and forecasted to stay on track for a brighter future. Hodge insight found 51% of advisers have seen an increase in later life lending enquiries over the past 12 months. More than three quarters are predicting a continued rise in enquiries over the next two to five years and almost 80% expect further growth in the next six to 10 years.
The cost of living and affordability of lifestyle are up there as some of the main contributors increasing the demand for later life lending. Alternative specialist lending products such as Retirement Interest Only (RIO) and 50+ mortgages are helping people maintain their desired lifestyle, while keeping their housing equity and addressing their retirement income concerns.
Affordability and the over 50s
Recent Hodge research found 83% of people are still worried about the cost of living, and its impact is widespread across all ages. We’ve all seen this first hand with the ‘great unretirement’. A wave of the over 50s UK workforce retuning to work after the pandemic hit. As well as keeping a working income, over 50s have been reportedly cutting back on spending and household bills and topping up investments and savings to make the most of their finances.
UK households are increasingly treating their housing equity as a financial asset. Alternative lending options allow them to actively manage this asset into very old age. In the past, equity release was the only option for releasing housing wealth. Now there are alternatives. Many people don’t want to have their equity reduced, if they can manage to pay the interest. Making affordability-based lending a great option for some later life borrowers.
Re-assessing RIO and figuring out 50+
Despite being available for a number of years, there is still an awareness gap around alternative equity release options such as RIO or 50+ mortgages. This means for advisers, a greater level of product education can be required to be able to offer consumers a full 360 of products available to them. With the new Consumer Duty framework on the horizon, a fundamental question for all advisers will be, how can borrowers make an informed decision if they only have a narrow view of what’s available?
Assessing your client's income and expenditure could mean these alternative products are not just a viable option for them, but the right option for them.
RIOs are similar to a traditional interest-only mortgage but with no set end date, they can be a great fit for over 50s looking for greater financial flexibility. As they have a set monthly interest payment, unlike with equity release mortgages, the interest does not roll up onto the mortgage balance. 50+ mortgages also have interest only options, keeping costs down while offering LTVs of up to 75% on IO and 85% on repayment even at age 50.
Working with Hodge is a reassuringly human journey for you and your client
Because we know everyone is unique, we want to understand each customer’s individual circumstances so we can help in the best way possible. Our expert underwriters manually assess every case, offering brokers a common sense approach. We’re there for the whole journey, walking advisers though the process that can help find a solution which meets their clients' financial goals.
“Customers are seeking the right option from their broker. This means being able to provide holistic advice and an understanding on all the products available in the later life market. In the flourishing landscape of specialist lending, you can rely on Hodge to help you build your knowledge and deliver the best solutions for your clients.” Andrea Roberts, national account manager (North).
The Hodge Early Repayment Promise
Most fixed rate mortgages don’t allow penalty free early repayment options. Meaning if a customer’s plans change, they can get penalised with early repayment charges (ERCs).
At Hodge, we’re the only lender to offer an Early Repayment Promise (ERP). If a customer repays us in full from the sale proceeds of their home, from day one they won’t incur early repayment charges even in their fixed rate period. Available on our 50+, RIO and Holiday Let mortgages. Find out more about our ERP here: https://hodgebank.co.uk/intermediaries/articles/the-early-repayment-promise/
Always working with you
We’re experts in specialist lending and we’ll work with you so you can help your clients achieve their goals. Our innovative products, common-sense approach to lending and years of expertise in specialist mortgages has been supporting customers with their financial futures since 1965.
If you’re looking for more information about specialist lending and how to deliver the best outcomes for your clients in the changing marketplace, speak to one of our BDMs today.
For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.