Pru reveals the shape of the lifetime mortgage market

ÿ Pru identifies distinct customer needs

ÿ Products will need to adapt

Comprehensive research by Pru of both consumers and IFAs, reveals a set of distinct, and very different, financial needs, amongst people in retirement.

“Increasingly IFAs are encountering a range of very distinct requirements from their clients and are calling for innovation in the market to support this”, says Ali Crossley, Director for Prudential’s lifetime mortgages.

The customers

The Pru research1 identified four key groups of over-65s emerging as buyers of lifetime mortgages:

ÿ The desperate. Those with no cash, who need funds to pay off debts or to pay for healthcare.

ÿ The struggling. Those who need repairs to their homes, a new car or extra income to supplement an inadequate pension.

ÿ The upshifters. Those who are looking to create the quality of life they always wanted in retirement – more holidays, new hobbies and eating out more.

ÿ The planners. Those who want to give some practical financial help to their children or grandchildren, like helping them with education or onto the housing ladder.

Surprisingly, the research reveals that only a very small majority of equity release schemes are sold to help mitigate inheritance tax.

As releasing equity becomes more widespread, understanding the needs of the client is paramount, as Ali Crossley explained: “Our research shows that people from all walks of life can benefit from releasing funds. This can be to ease financial problems, enjoy a fuller and more engaging retirement, or help grandchildren onto the housing ladder. How IFAs approach their clients depends very much on which category the customer falls into.”

What IFAs want

The Pru research identified key developments that intermediaries want to see in the lifetime mortgage and home reversion markets to meet these client needs:

ÿ Greater flexibility in product delivery;

ÿ Greater transparency in terms of costs and limitations;

ÿ The ability to take more money at a later date, under the same policy; and,

ÿ Lower costs.

Releasing equity – the trends

The Pru research also gave a picture of how lifetime mortgages are being used at the moment – and likely future trends:

ÿ Over half-a-million over-65s2 are forced to consider downsizing to release equity, which will provide extra income to support them in retirement.

ÿ 82% of over-55s3 would prefer to give financial support to children or grandchildren before they die instead of leaving an inheritance.

ÿ 44% of over-55s3 would release equity in their homes to help their offspring onto the housing ladder – this would amount to a £50 billion6 ‘hand-out’.

ÿ 18 million homeowners4 are relying on their home to help fund retirement – of whom 3.8 million believe it will provide over half of their retirement income.

ÿ 8.1 million5 over-55s set to become ‘twin-set jet-setters’ by taking more holidays in retirement.

Ali Crossley says: “Lifetime mortgages are becoming increasingly popular and, as more people realise the benefits, we expect this market to grow dramatically6. But our research concludes that the industry needs to develop products with enhanced flexibility and lower overall costs to truly tap into these consumer needs.”