Later life mortgages could provide an income buffer for advisers – Wilson
Last year, you might have read the Intermediary Mortgage Lenders Association’s (IMLA’s) report into the future prospects of the mortgage market, and its prediction that mortgage intermediaries’ share of lending will rise from 84% in 2023 to 89% in 2024, and over 90% in 2025.
It’s an oft-used statistic around our industry to reflect the strength of the intermediary sector and is clearly positive, but I can’t help thinking that – even if this is a prediction that comes true – it doesn’t consider the real issues for advisers of income levels, profitability and their ability to continue servicing clients. Indeed, their ability to keep advising.
A fragmented picture
I read a recent story in this very publication from Primis that suggested two-thirds of appointed representatives (ARs) polled believed there would be fewer mortgage advisers in the sector by 2025.
When asked why, it seems there was – unsurprisingly – a geographical split, with customers more exposed to higher rates and therefore affordability constraints in certain regions impacting product choices and therefore income that can be earned from these clients, while other advisers deal in a market where purchase and remortgage values are rising, and as a result are earning greater levels of income.
Advisers will be deeply cognisant of the impact falling income will have on profitability and might, one presumes, call it a day if this became an even more acute problem.
There is a lot to unpick there, and much like average UK house prices, I’m tempted not to take much out of this in overly general terms because the ‘average’ advisory firm tends not to exist. All will be impacted by various factors that differ depending on the area they work in, the types of clients they see, the sectors they might specialise in, the networks/clubs they are members of, and so forth.
A temperamental residential market
However, certainly the notion of maintaining income – particularly for those who only deal with residential mortgages – is clearly an issue for all firms, specifically in a market environment where we have seen considerable increases in product transfer (PT) business, while purchase and remortgage activity has been considerably dampened, to say the least.
Last year’s lending figures for 2023 show the stark reality of this: lending for house purchases is down 23% year-on-year and external remortgaging is down 21%, while internal PT lending was up 11%, not forgetting a 53% drop in new buy-to-let (BTL) purchase lending.
And, of course, with the vast majority of lenders paying a vastly inferior procuration fee for PT business, that is going to have an impact, and will continue to do so if PT lending continues (as predicted) to stay around such high levels.
How can mortgage advisers weather the storm?
So, the question is, what do advisers do to confront this threat – if not existential, then it certainly is one that is going to make life more difficult for them?
Branching out
The answer could, at least partly, lie in a broadening of the advice proposition, which – given the shifting demographics of our market – would seem to make perfect sense and herald the opportunity at least for greater income to be generated.
What are these demographics? Well, how about an increase in the average age of the first-time buyer? How about people working longer? How about a move in the state retirement age? How about people more comfortable with mortgage debt and much more likely to be taking this into, and past, traditional retirement age? How about the greater use of, and need for, the Bank of Mum and Dad?
I could go on.
Added to this is, of course, Consumer Duty and its requirements to look much more holistically at consumer outcomes for clients, regardless of which sector you predominantly work in.
In fact, while some might tell me directly, “I don’t do later life advice”, unless you have a client demographic where every single one is under the age of 50, then you most definitely do – at the very least – swim in later life lending waters, and you should definitely know what is out there.
In my view, any adviser working with the over-50s is a later life adviser, simply because there are now options available to this age group that might be more suitable to them. Rather than simply suggesting they PT again, they may have other wants and needs that could be serviced by, for example, a retirement interest-only (RIO) mortgage, or a lifetime mortgage, or a product that is an interest-only product that allows them to pay the interest now and move into a lifetime mortgage in the future.
These are active alternatives, and their number will continue to rise, and therefore only by taking these options seriously will advisers be not just able to provide over-50 clients with the right solution, but also take advantage of the greater income-generating opportunities that exist here.
You might not know it now, but skilfully shifting your business into an area where you can deliver what these clients actually now have access to might be the game-changer it requires to build greater income, and from this, increased profitability that ultimately means you don’t just survive, but thrive.
