“We have supported our existing customers by benchmarking additional borrowing rates to new business rates, but we’ve taken additional measures to make sure they understand the implications of borrowing at higher interest rates and the importance of limiting borrowing to what they need.”
Although the "mini"-Budget was in September, more2life managing director Ben Waugh says the impact was still being felt in the later-life lending sector more than nine months later.
“There is no getting away from the fact that rates have risen and customers are more cautious about borrowing, as they are concerned about what is happening with the cost of living crisis and inflation.
“However, we learned some really valuable lessons during the pandemic, and this has helped us to support customers as well as advisers in the current market.
“Communication is key and while changes to gilt rates have driven up interest rates on equity release, we do our utmost to ensure that advisers know exactly what is happening and when the application deadlines are.”
Equity release borrowers may not feel the impact of higher interest rates as quickly as standard mortgage borrowers, but Gilbert at L&G Home Finance highlights how the effect of compound interest rolling up on the loan is greater.
“We have worked quickly to provide additional personalised information to customers looking to take additional drawdowns on their plans, so they fully understand their choices and can clearly see how the interest will increase over time.
“In June we halved the minimum drawdown amount to £1,000. This is another product initiative we developed to support customers, and provide flexibility when customers need additional funds to ensure they can borrow what they need, reducing the impact of compound interest.
“In addition, we have recently increased the number of optional repayments that can be made for new flexible lifetime mortgage customers each year from four to 12, as well as allowing these customers to set up a monthly standing order to make smaller and more frequent partial penalty-free repayments.”
According to Gilbert, having the option to service interest becomes increasingly important in the current climate, and the market is expecting rates to remain high for some time.
But he adds that there are opportunities for continued innovation in the sector.
“For example, by considering contractual interest repayments for a period to enable higher loans, or looking at multiple later-life lending products in combination to meet wider customer needs.”
