The recent launch by provider, Hodge Lifetime, of its new ‘hybrid’ interest-only/lifetime mortgage product has garnered plenty of plaudits given the issue it is tackling for those in or reaching retirement. The product, as you now hopefully know, is an interest-only lifetime loan which does not require individuals to make any capital repayment until the normal equity release rules apply – i.e. the death of the borrower or they move into long-term care – however the borrower does have to pay the interest each month.
Many believe this product is something of a game-changer marrying up two normally separate elements and bringing them into one. Certainly, the interest-only nature of the lifetime mortgage is somewhat unique and it does provide a solution for those later-life borrowers who are coming to the end of their interest-only mortgages and who can afford to prolong their borrowing. We have seen many ‘Interest-only time bomb’ headlines over the past year or so about those individuals who are reaching retirement and have not prepared sufficiently to pay off their loan’s capital, so this product should be applauded for offering options to those in this situation but who can still pay their interest every month.
Because of the close mortgage/lifetime mortgage link and the fact this is unlikely to be the only such ‘hybrid’ product available, one notable commentator, Ray Boulger, has suggested that all mortgage advisers should now be competent and authorised to advise on all mortgages, including lifetime products. The suggestion is that lifetime mortgages should not require a separate authorisation as it does now and instead should become part of a catch-all requirement.
While I appreciate the logic, and Ray does suggest there will need to be transitional arrangements to achieve this, I believe there should be a distinction between mortgage and lifetime mortgage advice as not all advisers will have the necessary skills and expertise, or even desire, to advise in the equity release area. Of course, the suggestion also fails to mention the fact that home reversions are a core equity release product which also require separate authorisation. Are we to assume that the catch-all mortgage authorisation would include both lifetime and reversion products? I would suggest it would have to in order to provide fairness and transparency to the clients and to ensure that all equity release product options are understood, reviewed and made available.
A single authorisation which covers only mortgages and lifetime mortgages misses out a fundamental regulated equity release option – namely reversions. The fact is that equity release is a particular and specialist area, and a concern would be that those who are only used to advising on ‘normal’ residential mortgages would not be au fait with the separate advice process and the sensitivities around advising on equity release. There is a different process required and many more issues to consider with equity release advice – the benefit system being a rather large one.
Separate authorisations and competency for equity release was introduced because the regulator recognised these required specialist skills and potential customers needed to be treated differently. To my mind the introduction of this hybrid product does not change that and I see nothing wrong with a mortgage adviser being aware of the product, understanding that the product might possibly be suitable and then referring the client to a specialist who can take them through the process and ascertain whether this (or perhaps another equity release product) might be a more suitable option. Equity release has been determined as a distinct and separate part of the market and we should continue to keep it this way.
Chris Prior is manager, sales and distribution at Bridgewater Equity Release