The fall in global stock markets triggered a 15.2% drop in the value of the average pension fund in the first quarter of this year, comfortably surpassing that of 2008 financial crisis. Inevitably, the strain is being felt most by those over 50. Recent research from Legal and General found that 1.5 million workers in this demographic now plan to delay their retirement by an average of three years as a direct result of the pandemic’s financial impact.
At the same time, COVID-19 has exposed quite how fragile a steady income can be, something which many of us have taken for granted for years. Never have we witnessed a global event that has affected so many businesses across so many industries simultaneously. For those who still have years on their side, the aftershocks will elevate pension planning to the top of the agenda. Those who are nearing their retirement years, however, face an immediate challenge in securing their financial stability, something which could be overcome by releasing wealth from their property.
Equity release was already becoming a prevalent option for later life financial security. Figures from the Equity Release Council reveal that £1.06bn of property wealth was accessed via equity release products in Q1 2020 alone, up by 14% from £936m a year earlier. While we don’t yet know the full extent of COVID-19’s economic impact, low interest rates, coupled with a global recession, could see demand rise quickly in the near term as parents seek to provide financial support to family, look to secure themselves against future instability, or seek to replenish lost value in their pensions.
Lenders have a real opportunity to differentiate themselves within the equity release market, first by recognising this demand, and second, by ensuring they have the technologies and processes in place to create value for both new and existing customers. Gearing up now will also help overcome the challenges the market will face in a post-COVID-19 world.
The pandemic has made digital services a necessity and this requirement doesn’t disappear once you reach later life lending. Already it is widely acknowledged that the mortgage market lags behind the consumer credit sector when it comes to technology adoption, and many lenders may be struggling to get their head around how to automate processes, improve customer offerings and, above all, ensure they both champion responsible lending and remain compliant with regulation.
Encumbered by legacy systems, they need to think strategically about how they can bridge between their existing infrastructure and the ability to deliver new, consumer-centric service offerings and products, all while ensuring they are keeping on top of operating costs. Using API based architecture will allow mortgage providers to personalise the experience for their customers as well as introduce new functionality efficiently and cost effectively.
In the immediate term, adopting technologies that enable digital services and operations helps to fill the gap imposed by social distancing, which has made traditional face-to-face advice model that has long underpinned the mortgage industry redundant. With equity release advice likely to move to online or telephone-based services, working with a partner that can provide an outsourced loan servicing offering, combining specialist, experienced personnel, FCA compliant processes and an open technology platform will enable lenders to upscale capacity and ensure they are providing their customers with the support they need from the outset.
Granting customers access to digital self-service environments, built on API-led technology, where they can manage their own accounts will create both internal efficiencies for lenders and give customers added reassurance that they are in control. Such platforms can also support family members in managing the repayment of equity release following a death, where lenders may need to be flexible to accommodate difficult circumstances.
They can also ready themselves to launch new, consumer-centric services enabled by artificial intelligence (AI) and open banking data.
To support an anticipated increased market for equity release, lenders should begin reviewing their existing technology today, and look to specialist partners who can tailor agile solutions quickly to help them meet evolving market needs. The right partner will not only enable mortgage providers to service their later life customers but will also arm them with the tools they need to get ahead of the curve and transform their operations across their entire mortgage portfolio.
Richard Carter, Managing Director of Equiniti Credit Services
