Consultant Zone

Risk mitigation in funding later life lending

Later life and ‘last time’ buyer lending is a product area where growth rates are outstripping traditional lending. Some commentators are genuinely surprised at the growth and innovation over the last 6 months

But looking at the drivers, it is not surprising to see why. Many lenders are looking to develop product ranges away from core markets to spread concentration risk and at the same time increase lending in margin enhancing areas. This enables them to move away from product areas where competition has reduced margins to the point where the risk/reward balance is compromised. It is also clear that the asset rich ‘bank of mum and dad’ is being called on to provide deposit support for children wanting to get on the housing ladder. Add to that the fact that retirees today are living longer than previous generations, but are finding they have smaller personal pensions and increased costs of living to deal with, then we understand why the demand for products in this arena is increasing.

We support the view that the current rate of growth is going to continue. We have seen more activity from funders wanting to understand risk better and that the increased activity and focus shows funders are ready to support future growth, having tested the market over the last few years.

We are already working with a number of later life funders to review oversight arrangements, which can significantly differ from the funding of traditional lending. Funders need to consider two aspects 1) pre-funding reviews to ensure loan decisions, policies and procedures are robust and 2) on-going reviews to ensure that lending remains within a funder’s pre-agreed risk appetite.

Our list of areas for potential independent review and oversight can be long, but recent examples of increased activity have been around vulnerable customer interactions, power of attorney registrations and executor requests. Whether a funder or a lender, if you would like to find out more about our list, or if you would like to hear more about how we can help you gain better insights and help manage and mitigate risk, give us a call.