Q: Whenever I talk to clients about equity release products they become very reluctant when I tell them how the product works and how long they are locked in for. What extra advice can I give them?
A: The decision to release equity from a home is generally based on an immediate need. This can range from making significant improvements or changes to the home, needing to supplement retirement income, covering the costs of care, or helping family members financially.
But an equity release product is a long-term contract, and therefore, a provider’s flexibility and possible changes in people’s future circumstances should be thoroughly assessed when advising on product suitability.
We have seen significant developments in the equity release market in recent years, and it is a promising sign that there is talk of more providers entering the market, which will hopefully only help to further boost innovation and competitiveness.
Recent research we carried out shows that many advisers consider equity release to be a significant future growth area for their business, and for equity release to become a mainstream financial product in the next few years.
The main driver behind the continued growth of the equity release market was cited as clients’ needing to supplement their retirement income, followed by the rise in clients who need to pay off their mortgage and other debts.
While we have a population of cash-poor asset-rich people heading towards retirement, equity release should be a prime consideration, and form part of early discussions with an adviser.
There are many different options to take into account when a client is considering equity release, for instance, is equity release the right option or would downsizing suit them better? Do they need a lump sum or would smaller sums that they can drawdown over time be more suitable? Do they want to be able to make any repayments to the loan? Or will they want to move house in the future?
The ability to move house and transfer an equity release loan to the new property is a key point, giving clients the confidence that they won’t effectively be trapped in their current home if their circumstances changed.
But the simple fact of whether an equity release loan is portable or not shouldn’t be the only consideration.
Each provider will have a different appetite for the types of property it is willing to lend against. So understanding what your client might consider in the future could be essential to whether the loan is suitable for their needs. A prime example for this is knowing whether your client would consider moving to sheltered or retirement accommodation.
Not all providers will allow an equity release plan to be transferred to this type of property, which could make things difficult if there was a need for them to do so. It’s essential to understand how flexible lenders are, and that being able to service the needs of existing customers is a prime focus, reflected in their lending decisions.
While it is impossible to know exactly whether, or how, a client’s circumstances will change , it is important they are aware of the options an equity release plan offers over the long-term, as well as for what they need it to do today.