Figures from the Equity Release Council show the effect the pandemic has had on lending in this sector. In the second quarter of 2020 the number of people taking out a lifetime mortgage was 35 per cent lower, compared to the same period in 2019, while the amount borrowed was 24 per cent lower.

However, this contraction should be viewed in a wider context. Just Group communications director Stephen Lowe points out this fall comes on the back of record growth in recent years. It also follows a relatively strong start to the year. At the end of quarter one, figures suggested that 2020 was on track to be another record-breaking year.

This is now unlikely to happen. But Key Group chief executive Will Hale points out that sales figures for the first six months of 2020 show only a modest 10 per cent year-on-year decline, indicating the market remains robust, despite the unprecedented circumstances.

This has been largely due to the way lenders and advisers have changed existing processes to ensure customers can access lending while keeping required safeguards in place.

Hale says: “Covid-19 had the potential to be disastrous for this market as not only are our average customers over 70 years old, so often needing to isolate, but both legal and financial advice are typically given face to face and a physical valuation of the property is generally required by lenders.”

There have been a number of industry-wide initiatives to address these challenges. The ERC agreed a temporary measure with the legal profession to ensure that customers could still access high-quality independent legal advice without having to leave their home.

Individual firms, be they lenders or advisers, have also had to rapidly amend practices and propositions.

Lowe says: “We quickly altered our processes to make sure the customer could use our services safely. For example, we adapted our valuation process, removed the requirement for a general practitioner report, provided customers who were self-isolating with guidance on having documents witnessed safely, and modified the application process to allow for the problems vulnerable people had posting documents under lockdown.”

Brokers advising on later-life lending have faced challenges too. Teesside Money equity release consultant Steve Paterson says brokers initially had to deal with a drop in lender service standards as businesses switched to home working.

“The main issue has been delays with valuations and the independent legal advice. This, coupled with the inability to hold face-to-face meetings, has created a huge backlog for brokers, solicitors and providers alike.”

Lender caution

These are not the only problems brokers had to contend with. SPF Private Clients director Andy Shaw says: “Lenders became far more cautious during lockdown, but continued to lend where possible using remote valuation, albeit with loan-to-value restrictions and/or retentions.

“Surveyors’ professional indemnity cover restricted lending on higher-value properties on a remote valuation basis, which impacted a number of enquiries that we received.”

However, advisers say many of these initial teething problems have been resolved.

Paterson says: “Lenders have moved to desktop valuations, and advisers and solicitors have begun to embrace technology in the form of Zoom meetings.”

This has put the industry in a stronger position in what continues to be a challenging market, he believes.

Advisers have also taken into account changing customer needs during this period.

Hale explains: “We made the decision to adapt our advice philosophy to focus on supporting customers who had ‘immediate’ pressing needs – for example, a maturing interest-only mortgage that needed repaying. At the same time, we were trying to encourage customers with more ‘want’-based requirements – such as holidays or home improvements – to wait until normal market conditions returned.”

Advisers think the crisis has helped improve the efficiency of many businesses.

Hale says: “Face-to-face advice can be helpful in terms of building empathy with customers and identifying potential vulnerabilities. But video interaction can allow customers to involve other family members who may be based further afield.”

Looking ahead, it remains to be seen what impact this ongoing economic uncertainty will have on later-life lending. There are a number of factors in play at present. Moves by the chancellor to support the housing market, by temporarily removing stamp duty, have helped push house prices upwards again.

HUB Financial Solutions managing director Simon Gray says this “reinforces confidence in the health of the housing market as a whole” and helps support the equity release sector. It may boost demand too. Figures suggest one in five people uses equity release to provide financial support for family, often to fund a property deposit.

Hale adds: “There are likely to be more people trying to get on the housing ladder before the stamp duty holiday closes next year. This could drive demand for equity release, particularly as many mainstream residential lenders have tightened maximum LTVs and house prices remain buoyant.”

Other economic factors may also influence demand in the short-to-medium term. Widespread recession and rising unemployment could lead to more people seeking to release equity at a younger age — for example, in their 60s. Any government change to the state pension — such as altering the ‘triple lock’, which could reduce annual increases — could also lead to more people using property equity to top up incomes.

Coronavirus often pushes events that would normally be headline news into the background. This is true in the equity release market, where advisers have also had to contend with a major regulatory review of this sector.

Gray says: “The FCA review focused on three areas: understanding the client’s personal circumstances; adviser willingness to challenge customer preferences and assumptions; and better record keeping to ensure there is evidence that advice is suitable.”

While the FCA raised areas of concern, brokers point out it also highlighted more positive aspects in the market.

Shaw says: “The complaints and Financial Ombudsman Service data suggest a generally compliant marketplace. It is worth noting that the upheld complaints all related to advisers and firms who are not members of the ERC.

“The review also highlighted debt consolidation as an area in which improvements need to be made. The overarching message is how crucial it is that advice is personalised. Fact finding should not be box ticking.”

Paterson welcomes this review, which he says will help further improve standards.

“There is still a risk that many brokers are rushing into the sector as they see other areas of business dry up. While they may have the qualification, they are a long way from having the required experience.”

He notes widespread predictions that equity release could become a “hotbed of opportunity” for claims management companies, further under-lining the need to have a scrupulous and well-evidenced advice process.

Whatever the short-term coronavirus-led economic issues, longevity trends mean this part of the mortgage market is likely to expand and evolve over the long term, driving the need for both innovation and improved customer protection.