Adapting to customer needs: The evolution of equity release products

March 21, 2024
March 20, 2024

In the ever-evolving realm of equity release, lenders are actively pursuing ways to broaden their product offerings and provide customers with greater flexibility when it comes to payments.

Traditional lifetime mortgages have faced scrutiny due to the accumulation of compounding interest, often leaving borrowers burdened with significant debt at the end of the loan term.

To address industry challenges and meet consumer demands, both the Financial Conduct Authority (FCA) and the Equity Release Council are championing the adoption of more flexible payment alternatives.

The power of flexibility

The ability to offer customers options for ad hoc payments and regular repayments is a crucial consideration for lenders. Previously, individuals aged 55-60 still in employment and able to make interest payments on their equity release faced a market gap due to loan-to-value (LTV) restrictions on certain lifetime mortgage products.

By allowing customers the flexibility to make partial or full interest payments, as well as ad hoc contributions, the compounding effect can be alleviated, countering the negative perception associated with traditional lifetime mortgages.

Meeting borrower needs

Many customers, particularly those still working, are willing and capable of contributing towards the interest on their equity release. Lenders should look to explore innovative products that enable customers to agree to monthly interest payments or make ad hoc contributions with greater flexibility.

As these payments are voluntary, except for Retirement Interest Only (RIO) and contractual products, they provide customers with peace of mind, minimising the compounding interest impact and eliminating fears of property repossession if they are unable to maintain the payments.

The technology factor

Technological advancements have played a significant role in driving these changes within the equity release market. Improved technology allows for more efficient management of voluntary and ad hoc payments, empowering lenders to design and implement flexible products seamlessly.

With the right technological infrastructure in place, lenders have the opportunity to create equity release products that cater to the diverse needs and expectations of their customers. This includes features that facilitate easy management of voluntary payments, personalised payment schedules and overall payment management.

Innovation beckons

As the industry aligns itself with customer needs, we anticipate a surge of product innovation in the equity release sector. The focus will be on making equity release products more adaptable to customers' financial circumstances, reducing the impact of compounding interest, and ensuring the security of their property equity.

Lenders who embrace flexibility in payment options and leverage cutting-edge technology will play a pivotal role in reshaping the equity release landscape. By empowering customers, protecting their equity, and contributing to a more secure financial future, they will be at the forefront of driving positive change in the industry.