While equity release may be the product on many a lender’s lips,
a new report from Datamonitor has confirmed that while the potential for this market is huge, it is still suffering from the legacy left by borrowers experiencing negative equity back in the late 1980s.
Many of the horror stories were the result of mis-selling, with commission-hungry salespeople encouraging elderly homeowners to release a lump sum from their property to invest in a front-end loaded investment product, providing a double whammy in commission for the adviser.
But then came the recession. Investment returns were low and mortgages rates were rising as fast as house prices fell, leaving borrowers with not just negative equity but a poor performing investment.
Fortunately, these days are behind us and the trade body, Safe Home Income Plans (SHIP) has gone a long way to address the problems associated with equity release and will only accept as members those providers that meet its benchmark standards ‘ which include a no-negative equity guarantee.
But despite the efforts and the achievements of SHIP, it carries little weight with consumers ‘ of which many will remember the headlines castigating equity release.
Hopefully, regulation of mortgages under the Financial Services Authority (FSA) will bring a badge of respectability to an, if not new, a certainly improved market, and help shake off the out-dated perceptions of equity release. However, what we can expect remains to be seen.
The regulator has stated it will take on lifetime mortgages ‘ including equity release ‘ but without any flesh on the bones it is impossible to tell how this will transpire.
There is an element of concern that some products could fall outside the FSA’s remit, with some in the industry suggesting that whether products are included or not will depend on product design and distribution.
But even if regulation is all-encompassing, it will not come into force until 2004.
So, if the equity release market is to live up to its potential the industry will have to work hard at raising its profile now. We keep hearing how much equity release will grow but market potential is irrelevant if there is only limited demand.