Master Later Life Lending - By Air

RIO & Retirement Borrowing: Sustainable, Affordable Later-Life Lending in a Changing Market

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In our fourth episode of the season, hear from Paul Roberts, Senior Account Director at Family Building Society, as he shares how advisers can build more sustainable retirement borrowing strategies by joining up standard later life mortgages, RIOs and equity release.

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SPEAKER_01:

Welcome everyone to the latest in our podcast series of comprehensive conversations with key stakeholders from the later life lending market. And today I'm delighted to say that I'm joined by Paul Roberts, Senior Account Director at Family Building Society. So welcome, Paul. Good afternoon, Bill. Nice to see you. So today, Paul, we're going to explore some of the themes in the later life lending market that maybe sit outside of lifetime mortgages. So a lot of our members probably specialise in the later life lending market, and clearly, from an air perspective, we see a lot of volume through lifetime mortgages. But we know that lifetime mortgages is actually only a very small part of the broader later life lending market. Looking at the recent stats from UK finance, I think lifetime mortgages are probably under 10% of uh lending to the over 55%. So there's a big part of the market here that our members need to understand, and uh you're the guy to help us do it. So uh so I look forward to a conversation today. So so um my starting point, um Paul, is is just to get your take on um how advisors should be thinking about this broader later life lending market. We we talk a lot at air about making sure you're considering all options and keeping a very sort of um broad field of vision in the market. What does that look like to you in terms of best practice for advisors operating in this space?

SPEAKER_00:

It's an interesting one, Will, because I I speak to advisors every single day of the week. And it's interesting when you uh as a as a later life lender as we are, but we tend to have we have two sorts of products. We have our standard later life interest-only um capital and interest products, and then we have a Rio product that that runs alongside that. And often advisors, the first question you get asked is is is around a Rio. And quite often that can be for people as young as 55, um, right the way up to the well into their 80s. But it's it's I think there is this misconception still within the industry that you really only have a Rio, equity release, and lifetime when actually the mainstream uh certainly building society market offer their standard products to far, far, far, far later in life. And and they can often be much more flexible, certainly in the short term for some of those clients, uh, in terms of how they can help and support them. And and ironically, within the last hour, I've I've been chatting to an old client of mine, and he was he'd come to me initially looking for a Rio, but he's still working, his partner works, and he has some pension income. And when you look at a joint application, that fits far better into certainly at the ages that they're at the moment, into a standard mortgage product rather than either a a Rio or a lifetime product.

SPEAKER_01:

So why do you think these myths and misconceptions exist around um customers may maybe not being able to access mainstream products where um actually their circumstances do suggest that that they would be a good fit for those? Where's the market sort of uh missing the opportunity there?

SPEAKER_00:

I think, well, for again, this is from a personal perspective, we it is so much driven down very specialist lenders, you've got the likes of Hodge, etc. Um, and then the building society world, the definitely the smaller building society world who offer these later life products. You you you don't tend to find those products being offered by the high street banks uh and larger building societies, and that therefore there isn't the the knowledge perhaps. And these products weren't around maybe 20 years ago. Um and therefore that that that misconception misconception remains because it's not in everybody's focal point, it's it's often not in an advisor's focal point because they may only see one, two, three, four of these cases a year in in what they do as a as a as a natural uh proportion of their business. Obviously, some of the bigger firms do have now later life arms to them, um, and they're getting more and more information. And I think it's incumbent on us and as an industry to keep educating firms, brokers, advisors, etc., to to ensure that they do know there is this far wider product suite uh for clients out there.

SPEAKER_01:

Yeah, I think that's a really good point, Paul. I think you know, increasingly you know, lending to over 55s is becoming a specialist area, isn't it? And although products may span mainstream all the way to full fat equity release, you know, all of those options need to be considered. And you know, I'm saying this sort of um running one of the uh sort of sector's leading sourcing platforms in this space. But but do you think one of the problems is actually around sourcing in technology? It's it's a lot of those specialist lenders you talk about are probably not represented on sourcing in the same way as the mainstream firms, and a lot of the underwriting is probably fairly bespoke, is that fair to say? So it's quite difficult to represent accurately on sourcing.

SPEAKER_00:

Very much so, and again it comes back to look, just from our our perspective, where we might sit in a pricing bracket for our products will look very, very different to where the high street are. So if an advisor's sourcing for something, we might be on page two, three, four, five, week, whatever it might be, compared to that huge raft of products that are there from a high street point of view. And with the best win in the world, sourcing systems are still a system at the end of the day, and trying to ensure that um the right criteria is there to ensure to get the advisor to point them to the right place, it's not just as simple as straightforward as just pushing a few buttons. So that that just definitely doesn't help. Um, but I can say the knowledge in the market is growing because our marketplace is growing significantly, and the events that certainly I go to and we're involved with with yourselves and a number of other parties, it's gradually further and further educating our community.

SPEAKER_01:

Yeah, I think that's a really strong point you make around sourcing, Paul. I I always talk about sourcing being part of the research process, not the full research process. And I think you know, you you know, as an advisor who specializes in this in this space, you realize that sometimes you know you need to pick up the phone to lenders and you know understand what can be offered for a particular customer and supplement the sourcing with that um sort of manual research as well. So I think that's a that's a really really important point. But I think air as well, we've got a you know uh an obligation to go and help you spread the word and and help others of the specialist lenders as well. And through our academy and through our events, you know, we'll we'll look to do that. But but I do think you know have having the whole market sort of wake up, I think, to how products have evolved and how lenders have become more flexible in this space is is is a challenge that we've all got to stand tall to, I think. So yeah.

SPEAKER_00:

I think there's a couple of other points. Well, one is affordability is a is a classic example of how uh how sourcing doesn't always help you because of the different income types there are these days that lenders will take. You know, we as an example will consider pension pots in a very different way that perhaps uh and investments for that matter, in again compared to our high street. You've got other lenders who might only go to one age or another age, and it's how do they view that and what they'll take in income. Um, so those those can fundamentally impact how an advisor can actually source products in that respect.

SPEAKER_01:

Yeah, you you've got me on um what one of my uh sort of bugbears here, Paul. I think affordability, I I'm very passionate in sort of uh trying to get the message out there. I think, especially in the later life lending space, I I think advisors' consideration of affordability has to be much more sophisticated. So, I mean that starts, you know, using a buzzword for air with a very comprehensive conversation at outset around all of the customer's sources of income. But also I think affordability needs to be looked at not just as a binary concept around whether a customer is eligible for a product or not, but you know, as we've seen products in the lifetime mortgage market evolve, it it's what level of payment a customer could or should afford, bearing in mind lifestyle objectives as well. And and indeed, you know, not just what you pay on a monthly basis, but what ad hoc payments might you be able to make and the phasing of those payments over time and how they might be varied. So you're getting to a pretty complex piece of advice here. And again, for me, that's why you know this remains a specialist market and you know, where where hopefully our members at Met and Air can benefit from referral opportunities with mainstream mortgage advisors, but wealth managers and sort of IFAs as well. So it's it's an exciting space, isn't it, at the moment, but it doesn't require advisors to step up to that challenge.

SPEAKER_00:

It it's such a fast growing market. And look, you and I have been in this game for a few years now. Too long, Paul. Too long. I think is the uh best way to describe it. Look, I I can sit here. Look, before I came to family 10 years ago, I worked for another high street building society, I was there for for 14 years, and I can honestly say to you, I have more of my own clients come to me now for their own mortgages than I ever did when I was at Skipton. And that's no disrespect to that um that previous lender, but it's my clients are getting older, they need um support in later life, and actually, everyone that comes to me, then it's sticking in their brain, ah, this is what family can do, this is what this lender can do, this is what that lender can do in terms of actually supporting their clients. Because many of their clients will be getting older as well. And um, I know we haven't talked about budgets and things like that at this moment in time, but the the sorts of things that go on the budget, people are looking at ways of inheritance tax planning, financial planning, you know, looking after their children in um uh in helping them to get into homes, etc. And the later life market, be that a building society product, be that a specialist lender product, be that lifetime equity release, et cetera, is fundamentally important in helping them do that.

SPEAKER_01:

Well, Paul, you you you you've uh you're obviously a pro at this. That's a very natural transition into talking about the budget. So uh so let's go there. Because as you as you say, I think um, look, for me, the budget was a bit of a damn squib, actually. I mean, the government did a lot of kite flying pre the event, but actually what came out was you know was fairly bland, I think. But but having said that, what's really clear is the direction of travel being pursued by this chancellor and this government. And you know, clearly there's going to be um a lot more pressure on um finances for for many individuals and many families. And um, and again, the clue's in the name, I think, with Family Building Society, but obviously intergenerational lending is a big part of what you do. So I say, beyond just the later life space, talk a little bit about how you see that sort of family planning and and how families can um help each other with sort of meeting some of the um challenges of getting onto the housing ladder and moving up the housing ladder.

SPEAKER_00:

It's kind of on a weekly basis, I see a significant proportion of clients. And and and I estimate roughly I over 60% of the of the business I do in a year is effectively a form of later life um lending. And that can be the standard sort of taking an older borrower further and further into later life because they want to borrow to gift to a family member, because they're perhaps doing it for a deposit for a property. But more and more are we seeing the joint borrower sole proprietor, so the modern guarantor mortgage coming into play. Um, as example, we've moved to 90% in that market where we were at 80% before, because that the clue is in the title, and as you say, Family Building Society, we are trying to help this group of people down the line. And I know other lenders are doing this and and have different versions of it. But you know, the simple fact of the matter is from our perspective, a 70-year-old parent can still help potentially their 40-year-old son or daughter going through um a difficult situation, a divorce, separation, etc. But we can still help them for 25 years. And that I always say it's coming back down to what it comes back down to affordability again, doesn't it? How can that son or daughter afford that monthly payment? And if they're being squeezed and pushed down the 10 or 15 route with perhaps a high street um lender, that's quite a significant payment difference. And yes, as a smaller lender, we might be a slightly higher interest rate, but it's the monthly payment at the end of the day while they get through the next two, three, four, five, uh, six years. So the intergenerational lending style of of what us and and and plenty of other lenders do, it fundamentally supports the housing market and allows people to stay in their homes. It allows them to get through these difficult circumstances, it allows them to progress up the property ladder. And that's partly where the things like the gift of um the gift of equity from their gift of funds from their own family home does does make a healthy difference as as well.

SPEAKER_01:

And and it it is a there is a compelling argument for that, isn't it? I mean, uh you've probably seen it, but I saw some really interesting research from from MAB about you know the cost of renting over over a lifetime and you know how beneficial it is to actually help people into home ownership, because it actually puts a lot more money in their pocket, and particularly actually when you look into later life, how much you know they can they can save by by owning their property rather than renting. So, you know, if we from a societal perspective, as much as anything, you know, home ownership has to be a sensible aspiration, and you know, lenders such as yourself who can take a you know maybe maybe slightly more innovative innovative view on how family finances can be used to achieve that, I mean that that has to be a good thing, doesn't it?

SPEAKER_00:

Completely. And you you look at the actual growth in rents compared to obviously we're seeing reducing interest rates gradually from a residential point of view, but you look at the see the growth of um rental costs, and actually with the greatest will in the world, with the changes that are currently being made with renters' rights bill, etc., yeah, that will only push rents up. That will not um reduce rents in any way, shape, or form. So you've got products in the market, and I you know, Skipton's 100% track record mortgage where you've got people who are are renting and they'll take the view on that person. You know, other lenders will look at clients and go, actually, well, they're renting, they're paying£1,000 a month at the moment, their mortgage payment's going to be£700. If the bank statements are good and the overall credit profile is good, why is it we wouldn't consider that client for the loan size that they need if effectively they're already paying that anyway?

SPEAKER_01:

Yeah, no, completely agree. And and it's interesting actually, if we move sort of slightly beyond the budget, but but maybe sort of looking to the um FCA discussion paper on the future of the mortgage market, it is quite interesting, isn't it, that you see almost the two ends of the spectrum represented in that that paper. You know, how can we get more people onto the housing ladder, but also recognizing the importance of later life lending? So I'm interested in your views actually on the discussion paper and and and how that might sort of see an evolution in the market over the next year and beyond.

SPEAKER_00:

Just it has to change. We have to keep growing, we have to keep innovating in our market to try and make a difference for both ends of the spectrum, as well as the ones in the middle. You know, we have an aging population. Uh, Will, we have an awful lot of people staying in their their homes because they can't afford uh to downsize effectively because of the stamp duty rules and what that might then impact. But fundamentally, our market is going to have to change, and some of that is going to have to be helped by uh central government in terms of what options they can offer to try and help unblock some of that housing uh market. You know, we've got increasing house prices constantly, haven't we? Generally speaking, because it's it comes back down to supply and demand. There are not enough houses being built, therefore people are staying put, there are more people um coming into the system looking for property, looking for rental property, etc. And it's going to need not only our industry on its own to do some of this, but there is going to need to be some addressing of the issues from a from a central government point of view.

SPEAKER_01:

Yeah, I I agree with that, but I but I also think you know sometimes the industry can focus on some of those big macro issues that, you know, frankly, are quite difficult to solve, and we've got to wait for other stakeholders to do it. And actually, you know, I think sometimes what we've got to look at is the stuff that's right in front of us that we can influence today. And um, I thought it was interesting as well from the discussion paper, you know, there's there's definitely some pressure on intermediaries, I think, particularly in the the sort of um, shall I say, the vanilla part of the mainstream market. I think it's clear that you know some of the big lenders are coming to eat brokers' lunch on on that part of the market. So for me, there's a real commercial driver actually for advisors to focus on more specialist markets, such as later life lending, because that's where the value of advice really stands apart. So, you know, if you were to sort of, I don't know, as you say, you speak to brokers every day, but if you're talking to firm principals and advisors, what are the things that they can do to really um make sure they seize that opportunity in that later life space and protect their business maybe from some of the margin pressures coming in different areas?

SPEAKER_00:

I think you just have to get yourself educated as best as possible in terms of what is out there for your clients. It it's all well and good, isn't it? Best one in the world is to focus on those easy low-hanging fruits, perhaps those remortgage cases, etc. And I hate saying this, but it is it's true. It's they are they're low-hanging fruits, aren't they? But look at the growth in our market, and I'm fairly sure if not, uh that there's been an 18% growth in later life lending just in the last 12 months, um that is only going to keep growing. And if you're not in that space already, if you are unsure of how to operate in that space, the number of events, things like these podcasts, the amount of information that's out there, along with the support network from the lenders to look after them and actually look get into this section of the market because it is only going to keep growing.

SPEAKER_01:

Yeah. No, I I agree. I th I think it's um, you know, actually, when you look, there's an amazing amount of support out there, as you say, isn't it? You know, all the lenders through the BDMs, but through their own sort of materials and you know, hopefully what we do as air, that all the help is there if brokers just engage and seize it, I think. So um, yeah, that's definitely a good message, Paul, on the education front. I think the other thing for me, and it'd be again interested to get your views, but but comes around sort of data and um technology. I think brokers, as you say, I think have become quite sophisticated in making sure that they engage with customers as part of that remortgage process. You know, the same could be said for later life, I think. I think segmenting your customer base so that you're looking at customers over the age of 55 who are maybe coming to the end of a fixed rate period or they're coming to the end of an interest-only mortgage and really targeting some engagement with those customers. I think that could make a real difference as well to the commercial performance of some of our broker partners. What do you think about that?

SPEAKER_00:

No, absolutely agree, Will. It's at the end of the day, if you've got clients who are in that 55 to 65 bracket, the high street will still support you on a relatively short basis. But that is quite a short-term outlook for that client. And actually, the time you spend with your client and work out where are they going next with this, because the number of clients we have got and our competitors within the industry have got coming now at 65, then 70, then 75, and 80 years of age, the high street with the greatest will in the world aren't that interested in that type of business. And that's why we exist as smaller lenders and the likes of Hodge etc. More are also in those spaces. So it's having that holistic conversation with those clients to make sure you know where are they going. What is your next route down? Okay, and planning for that.

SPEAKER_01:

Yeah, I again I think you're spot on there, Paul. I think it comes back to that that piece again as air we promote comprehensive conversations. I think for me, that's the difference between an advisor and an order taker. If you're having that really in-depth conversation and understanding those holistic needs, then then you can deliver really tailored personalized advice rather than simply helping that customer roll on to the next fixed rate period, which you know maybe isn't the right answer for some of those customers, particularly as they get older.

SPEAKER_00:

Mortgage advisors, as an example, are not specifically pension specialists, etc. But just asking those questions around what is the customer's plan, what is what have they got in place for the future, it fundamentally will help them decide where are they going to go next for that client, or are we should you be planning to get that mortgage packed up, done, and dusted by the age of 70 as an example? Or if it's not, right, okay, well, where how far advanced are you in your plans with your pension planning, with your investment planning, etc., buy-to-lets in the background, rental yields, etc., to make sure you know where your next point is. And I will use an example here. I I only spoke to a customer a couple of days ago who was looking at a client who was struggling. They'd got a buy-to-let portfolio, but they got a residential mortgage coming to an end within a couple of years with a non-traditional high street lender. They knew that they were going to have to do something about that. So the planning and conversation they were having with me was very much around what can we do now? What can we do down the line in the next 18 months, two years when their product comes to an end, so that they'd already got in mind what that exit strategy could be.

SPEAKER_01:

Yeah, that's a great example. Great example. And and again, just just just changing theme slightly. I you know, one of the barriers maybe for some advisors really sort of getting involved in in this market is is sort of nervousness around sort of risk and and particularly around maybe vulnerable customers. So I again I know family's done quite a lot of work in this space. So what would be the key messages that you would give to advisors around vulnerable customers and how to make sure we deliver great outcomes for those customers as well?

SPEAKER_00:

It comes back down to advice again, Will, doesn't it, at the end of the day, and the driving force behind it. And what questions are you asking of that client and really drilling down, especially the older they get, and I would I would push that out now to beyond, well, beyond the ages of 75, etc., is what questions are you asking about what is the outcome that customer is wanting uh in terms of exit strategy from that property? Because we do, as you know, we do interest-only mortgages to far later in life, but they will often be with the use of downsizing as the repayment vehicle, and that might be fine now, but what's your exit strategy, what's your honestly, what is the real exit strategy because that client ultimately might want to stay in their home for the rest of their life, so we're we might be a halfway house uh for what they're doing, but what are your plans and how are you going to help that customer the next time down the line when they either come to the end of our deal or another building society's deal in terms of equity release, lifetime mortgage, etc. I think you've got to be having those conversations and honest conversations now with clients and not leaving it to the very last minute.

SPEAKER_01:

Yeah. No, that's that's great advice, Paul. Great advice. So I think we're sort of coming to the end of our session today, but before we do so, I just just focusing on on family. It'd be good to understand, you know, where what what are your sort of um key areas of focus for next year? What should advisors look out for from family in 2026?

SPEAKER_00:

Uh it's ironically, it's just started now. The planning, uh, as you know, the planning from my point of view would always be from the early parts of October for next year. Um, but one of the things we've already done just before the end of this uh current year is we've just amended our affordability um calculation to support, uh, in particular to support later life clients to make sure we're giving them the best options that we can uh in a in a in a comprehensive but careful and and structured manner. I think you've got more um interesting criteria, tweaks, and changes to come in 2026 to further allow us to support not just later life but that that um holistic financial planning for uh intergenerational lending. I think there's some nice things uh to come from there. We will look for growth. Um we you know we're a growing, building society, and certainly the conversations I'm having with with many of my sort of bigger firms is look, how do we support you? What else do you need from our point of view? And in fairness, the wider market, what else do you need from us um to be able to deliver better outcomes and improved outcomes for clients on a more consistent basis? So I look we we certainly have good hopes for next year. It's a big remortgage year, I think, next year for many people. Uh sadly, some people are going to come off some very low rates. So that's going to be interesting for some clients to uh to take on board because they might not find them quite as cheap. Um, but no, it but the message will again be we will be there at events, we'll be spending more time out on the road, we'll be spending more time at events, you know, giving you as much support and information as possible in this area of the market.

SPEAKER_01:

Well, thanks, Paul. I on behalf of AIR and certainly on behalf of our members, I'd just like to say thank you for all of the support that um that Family Building Society have offered to us this year, and um and I'm sure that there'll be a successful year ahead for you and our members as well. So I I'm uh cautiously optimistic around the prospects of the later life lending market going into 2026. But um, but thank you for your time today, much appreciated. Have a great Christmas and best wishes for the new year. And for all of those listening today, um thank you for uh attending this uh latest in our series of podcasts focused on comprehensive conversations with key stakeholders in the later life lending market. And we look forward to seeing you next time. Thank you.