The increased popularity in recent years of equity release (lifetime) mortgages (ERMs) is something of which all UK Finance members will be aware. The reasons for this are well rehearsed, although ultimately they boil down to one key component: a progressively ?asset-rich? but ?cash poor? population over the age of 55 looking to unlock value in their property. Whether it is to carry out home improvements and repairs; make large capital purchases such as holidays and cars; supplement their retirement income; or provide funds to younger family members, homeowners of a certain age are increasingly looking to their home to release cash.

Figures published recently by the Equity Release Council suggest that the number of borrowers entering into ERMs, and the cumulative value of these new mortgage plans, was higher in 2018 than it has been in the past ten years.

Given the rise in both the number and value of ERMs being entered into, we?ve taken the opportunity to identify some observations taken from our experience of acting on the origination, trading and collateralisation of ERMs.

Evolving and more competitive product types

Whilst the basic premise of ERM products is much the same as it was ten years ago (a sum of money being lent against a property, accruing interest, and being repayable upon the death or entry into long-term care of the borrower), the options now available to borrowers within these parameters have grown.

For example, we have seen a number of ERM lenders offering borrowers the ability to repay the ERM earlier and with lower early repayment charges. Lenders are also allowing more flexibility for borrowers to draw down cash, such as a committed loan amount which the borrower can choose to draw down (or not) in multiple tranches.

An increasing number of lenders are also offering borrowers the ability to repay interest on the ERM, rather than it simply being rolled-up, capitalised into the loan amount and repaid upon the sale of the property.

However, in our experience, home reversion (or shared equity) plans are less popular in the Scottish marketplace.

Mortgage book trading and investment

Away from the lending frontline, we have seen a great deal of investment activity involving ERMs. Over the past 12-18 months a growing number of mortgage books comprising ERMs have been traded or used as collateral for funding obligations, with the most high profile perhaps being the sale by UKAR of a portfolio of Northern Rock, Bradford & Bingley and Mortgage express ERMs. We have also been instructed in relation to a large number of mortgage warehousing and fund-to-lend schemes involving ERMs (in relation to which Scottish mortgages present their own challenges). This increased activity suggests that institutional investors and funds in the debt capital markets also see ERMs as a valuable investment opportunity. It will be worth keeping an eye on how the market develops in the upcoming months with the impact of Brexit and other factors.