With 2015 bringing record lending and 2016 marking 25 years since the first equity release industry standards were introduced, we are entering a crucial phase of evolution. The challenge is to meet the fast-growing appetite for using housing wealth in retirement while retaining consumer trust, which rests on the rigorous safeguards and advice processes that are currently in place.
The popularity of drawdown today is one example of innovation benefiting consumers, with seven in 10 new plans during Q4 2015 involving customers releasing equity in stages as and when needed, thereby limiting the build-up of interest. The growth years have also brought new features to market such as the ability to protect a percentage of equity as an inheritance, make interest repayments in the initial years of a loan and increasing flexibilities on capital repayments.
Consumer appeal will grow as such features become more widely available, new thinking informs further developments and competition ensures attractive rates. So-called ‘hybrid’ products are a big area for discussion, and we expect to see more appetite for mortgage products with the option to revert to equity release as people retire.
Access to funding is vital and prudential regulations will be a big factor. Existing and potential providers are exploring new avenues and we have asked the Financial Conduct Authority and Prudential Regulation Authority to jointly consider the extent to which current requirements create barriers for firms, and whether a broader approach could enable access to alternative sources of funding.
Crucially, for innovation to bring long-term benefits to customers, it must be combined with protection and sustainability, with consumers properly advised and products ‘future-proofed’ against market developments and individuals’ changing circumstances. Someone in their 50s might not think the no-negative equity guarantee worth having; but in their 70s things might look very different.