Warren Bleechmore, Principal Consultant at finova explores how flexible payment options, driven by technological innovation, are reshaping the industry
As the landscape of lifetime mortgage origination and servicing evolves, lenders are increasingly exploring ways to extend their product ranges and provide more flexible payment options for consumers.
In the realm of equity release, traditional lifetime mortgages have faced criticism due to the compounding interest that accumulates over the entire loan period, often leaving customers with a substantial debt at the end.
In response to industry challenges and consumer demands, both the Financial Conduct Authority (FCA) and the Equity Release Council are advocating for more flexible payment alternatives.
The importance of flexibility
One of the crucial aspects that lenders should consider is the ability to be more flexible with customers regarding optional ad hoc payments and regular payments.
Due to the LTV restrictions on some lifetime products, a notable market gap existed for individuals aged 55-60 who are still in work and can afford to make payments toward the interest on their equity release.
Offering flexibility for customers to make partial or full interest payments, and ad hoc payments, can mitigate the compounding effect and address the stigma associated with traditional lifetime mortgages.
Addressing borrower needs
Customers, especially those still engaged in the workforce, may be willing and able to contribute toward the interest on their equity release.
Lenders should look to explore innovative products that allow customers to agree to pay all or part of the interest each month or more flexibly make ad hoc payments.
As these payments are voluntary (other than for RIO and contractual products), this ensures that customers can minimise the compounding effect of interest and remain protected, staying in their properties without fear of repossession.
The role of technology
One of the drivers of these changes in the equity release market is technology improvements to allow more flexibility in managing the voluntary and ad hoc payments.
Lenders need advanced solutions that empower them to design and implement flexible products seamlessly.
With the right technological infrastructure, lenders can create innovative equity release products that align with the diverse needs of their customers.
This includes features that enable easy management of voluntary payments, personalised payment schedules and management of the payments.
Now is the time for product innovation
As the industry moves towards accommodating customer needs, we anticipate a surge in product innovation.
The focus will be on making equity release more adaptable to customers’ financial situations, minimising the impact of compounding interest and safeguarding their equity in the property.
By leveraging technology, lenders can lead the way in creating a new generation of equity release products that align with evolving consumer expectations.
Lenders willing to embrace flexibility in payment options and leverage cutting-edge technology will play a pivotal role in reshaping the landscape.
As we move forward, the emphasis should be on creating equity release products that empower customers, protect their equity and contribute to a more secure financial future.
- Views of contributors are not necessarily shared by the Council.
