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Twice or thrice in a lifetime?

Will remortgaging develop in the same way as the booming residential remortgaging market?

John Charcol senior technical manager Ray Boulger sparked off a debate last week by claiming that lifetime remortgaging will become commonplace..

It leaves advisers concerned over taking a closer look at early redemption charges.

Ship chairman and Hodge Equity Release managing director Jon King says Boulger’s assertion is accurate, as the market expands and the age at which people take up the product falls.

King says in the last 10 years, the average age range for lifetime mortgage plans has reduced from people in their 70’s to those in their 60’s, leaving a bigger time frame for the policy’s duration and more opportunity for them to change providers, who may offer better terms.

He says: “The IFA community is going to have to look carefully at the plans recommended to clients in terms of exit penalties as the potential for these clients to want to leave these policies grows.”

Portman Building Society group development director Matthew Wyles says he agrees with Boulger. “Advisers need to be careful when suggesting products with more than a five-year redemption period because in the future clients will be regularly reviewing their circumstances as flexibility and innovation increases,” says Wyles.

He adds it will not be long before a product becomes available without early redemption charges, although clients will have to pay for this flexibility in other ways.

Other product providers are sceptical about a big increase in lifetime remortgaging. Key Retirement Solutions business development director Dean Mirfin says there will be a growth in lifetime remortgaging but does not believe it will be as significant as Boulger suggests.

Mirfin says there are not enough advisers to deal with new business, let alone remortgaging. “From an adviser perspective, lifetime remortgaging is more difficult than dealing with new business because of the added client priorities that need to be taken into account,” he says.

He adds, unlike the residential market, lifetime mortgage providers do not offer deals such as no arrangement fees or solicitor fees for remortgaging, leading to the average remortgage costing between 1,000 to 1,500.

But Mirfin does point out that recent moves from some providers to increase early repayment periods, such as Northern Rock’s recent increase from 15 to 20 years on two products, and providers scrapping sliding repayment periods, as evidence of an increase in flexibility that advisers should be making clients aware of.

GE Life equity-release product manager Simon Little disagrees with Mirfin’s assertion that lifetime remortgaging will not become prevalent because of a lack of freebies, pointing out the residential market evolved from a point when these free offers were not available.

Little says a healthy lifetime remortgaging market is on the way and will represent 25 per cent of the sector, with advisers having to keep in mind early redemption periods when recommending products, to steer away from the prospect of misselling. “IFAs will ignore these long-term early redemption charges at their peril, as it is almost certain circumstances will change and the innovation and flexibility coming to the market means clients need to be informed of all the pitfalls before tying into one of these policies,” says Little.

He believes the main drivers behind this innovation and the increase in remortgaging will be the estate beneficiaries, looking to ensure the best value for their future assets.

Little says the only future problem for lifetime remortgaging may be the fact a client is accumulating debt, rather than paying it off, so in 10 years a client may not fit a new lender’s criteria. But he says in the future lenders will take a more aggressive stance to LTVs to accommodate transferring clients.

Bristol & West head of marketing Dominic Toller agrees with Little that the market is going to be driven by estate beneficiaries, but suggests the market will only explode if there is a dramatic change to either house prices, swap rates or mortality rates.

“If there is a drop in swap rates, then other lenders will be able to offer cheaper rates, leading to a drop in accumulated debt and a bigger estate on death,” says Toller.

He adds Boulger is right to suggest an increase in remortgaging is on its way, simply because the market is so small at the moment but Toller believes it is highly unlikely to equal the residential market, driven by products such as fixed-rate two-year deals, unless dramatic changes to the financial or social landscape take place.

Norwich Union Equity Release head of marketing Nigel Spencer says Boulger’s forecast should be borne out in the long term as a new generation used to remortgaging enters the equity-release market.

Spencer says this will create a challenge and an opportunity for NU, whose early redemption period is the expected life of the policy, in perhaps offering more flexible products and new policies, such as variable rates, to accommodate this demand.

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