Equity Release Changing of the guard Equity release should always be discussed with clients
by Alison Beeston, group compliance & risk manager, Bridgewater Equity Release
The new shape of the mortgage market is already starting to take place and this will be exacerbated when the final MMR rules are announced. We are already seeing lenders reacting to the anticipated changes, particularly in areas such as interest-only mortgages, which appear to be high on the FSA’s agenda with their future distribution likely to be accompanied by a significant number of stipulations and responsibilities for lenders who offer such products. Already, lenders are pulling back
from interest-only residential mortgage offerings and I was interested to see press comment from the equity release advisory body, SERA, which highlighted the difficult position many interest-only borrowers may find themselves in as they reach the end of their term and do not have the savings in place to fund the capital amount. SERA suggests that older people with interest-only mortgages could be finding it difficult to remortgage as a result of their ages and/or the result of tighter lending rules. SERA believes this may mean borrowers having to opt for equity release plans in order pay off the capital. This is an interesting point and one that
may spark a further debate about equity release which has traditionally been a product that many people have shied away from but, given situations like the interest-only dilemma, some borrowers may find they have limited options and therefore equity release does need to be considered. While this is a worthwhile point to raise the suggestion is that equity release is still only an option of ‘last resort’ and it is vitally important that the
industry gets away from this perception. Equity release should be treated as a viable solution for clients dependent on their needs and circumstances and not just considered when they are perceived to have reached the ‘end of the road’. The equity release sector still has
major problems to overcome particularly around consumer ignorance and this is not helped by many consumer advice systems which do not recognise the value of equity release, coupled with the fact that there are still only a tiny number of qualified and experienced equity release financial advisers around. Trying to increase the number of qualified equity release advisers who are fully committed to the sector has been, and remains difficult, notably because many IFAs view the product area as ‘last resort’ and therefore as an advisory segment to offer it remains unattractive. However, this completely discounts the
many important uses of equity release and it should absolutely be considered as part of every individual’s retirement planning. This becomes even more clear if we look at the new Coalition Government’s ideology and methodology which is perhaps best described as ‘time to help yourself’.
In this new
environment, which includes a major roll- back of the State, the focus is back on individual responsibility. This Government is saying that individuals need to look after themselves and their nearest and dearest, with the expectation being that the Government will then look after those who are unable to look after themselves. Note, in today’s economic environment those who ‘won’t’ look after themselves will not be helped. The ramifications for many people
will be clear. The issue of retirement living is not going to be solved by the Government and its benefit system, mainly because the piggy bank is empty and there is simply no money to do so.
40 mortgage introduCer SEPTEMBER 2010
Pensions in many cases are not going to be enough to fund retirement so where does this leave those people facing shortfalls? It has been a question raised all too often by the equity release sector and perhaps now this is the time when both the Government and the wider advisory community will have to embrace it as one of a number of solutions for those in or reaching retirement. It is a simple fact that advisers will
not be planning for a client’s retirement properly and completely if they ignore one of their major assets – the home. We are certainly going to need to view this asset in a different light simply because people’s ambitions and objectives for their retirement will often exceed their ability to fund it and, truth be told, this gap is only going to increase. It may well be that we have reached a time where leaving the family home to the next generation is no longer possible as we live longer and we need to confront how we are going to pay for those extra years. We are possibly at the beginning of a
real generational shift here; living within our means could become the new mantra and certainly the State wants us all to be less reliant on it. Alongside this, the Government needs to change the state benefit system to finally recognise that it can encourage people to use the resources they have and not penalising them for doing so. When we have low- income home-owners worried about taking out an equity release plan because of the potential negative effect to their benefits, then something is wrong. Although the industry is trying to develop products that work within this current structure it is notoriously difficult to do this in a cost-effective manner. We all have a duty and responsibility
to educate not just our client base but ourselves on the variety of options available to those reaching or in retirement. n
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