Stuart Wilson is CEO at Air Group
I saw a recent headline which referred to both mainstream and specialist residential lenders having ‘loosened’ their criteria recently, looking to secure business levels in the face of strong demand, which prior to that point hadn’t necessarily been serviced.
I’m not sure if this directly led to the question we received at this week’s ‘Breakfast with Stu’ meeting but I know that later life/equity release advisers may also work in the residential space, or at the very least be interested in what is happening criteria-wise with lenders.
The question focused on provider criteria in later life and equity release lending and whether it was currently too restrictive. Understandably, advisers are always going to come across clients who don’t fit any lenders’ existing criteria, regardless of the product/sector they’re looking in, and I know this can be frustrating if the client is, for all intents and purposes, deemed to be a good credit risk.
In answering this question though, it’s notable that within our lending space we have to look rather differently at criteria because, for the most part it’s not the client themselves, their affordability, their income, etc, which is being assessed and underwritten, but the property.
Of course, providers will be conducting credit checks on individuals and the other legal requirements, but as mentioned, this is not a lending decision based on income checks or affordability being met, but one based on the physical asset. That makes lender/provider criteria in our space a rather different kettle of fish.
And there are a number of considerations at play here. First, let’s start with the property – providers are essentially looking at the quality of the asset, and importantly, its saleability. Not just now you understand but well into the future. As one provider pointed out on the call, they could have that property on their ‘books’ for decades, which is why they’ll focus so intently on its condition and its saleability over a long time horizon.
It’s why we believe advisers should get as much information as possible about the property upfront, and why they should try to understand how its quality and condition might impact on the ability to offer an equity release product to the client. For instance, what if the client has been living there for 40 years, and the décor is old, the kitchen and electrics might not be up to modern standards, you could go on. One adviser pointed out that lenders in this space will also consider the potential for the client to use the property for hoarding, because clearly this has an impact on its condition.
That being the case, it should come as no surprise to learn that lenders in this space will have a much tighter focus on the property. They will not be emotive about it – which could come as something of a shock to those homeowners who might well have lived their all their lives – but instead they will look at the nuts and bolts of the asset, not the memories that may lie within.
This all impacts on the criteria question, and the product/rate/amount that can be offered to the client. There are also a number of other factors being taken into account, not least the overall size of the equity release market, because at its current size, changing criteria may not bring in a significant amount of business anyway. Certainly, not enough to justify the change, and it may also not be in keeping with the risk appetite of the lender, their funders, etc or indeed it may put them outside their comfort zone in terms of regulatory compliance.
That said, we do know that some lenders have eased criteria recently and, in that sense, the direction of travel is good. As more lenders do this, others will follow although we should perhaps not expect it to be a flood.
For advisers, the focus has to be on factfinding the property as well as the client. Get all the information you can whether it’s the standard of the roof, the wall construction, its age, the drainage, the services, whether it has solar panels, cavity wall insulation, whether it’s in a flood zone and is it insured for flooding – I could go on but you get my drift here.
Think of everything a valuer would take into account when visiting it – perhaps use Google Street View to take a look yourself, understand where the property sits, are there commercial or agricultural restrictions around it, etc. Having a full picture insures you can move that client forward in the right direction with the right provider.
And, if in any doubt, use our support team because we’ll undoubtedly be able to provide you with information and support your work with those providers. Criteria can be a moveable feast – perhaps not as moveable as some advisers would like, but the more you know about the property, the better you’ll be able to deliver the right outcome for your clients.