In June, the FCA published a report into equity release sales and advice processes which found that “where customers were suitably advised, we have seen some good outcomes where consumers ended up with an equity release product that met their long-term needs”.
However, concerns were raised around personalisation of advice, insufficient challenging of customer assumptions and lack of evidence regarding the suitability of advice.
These points were also reinforced in a Dear CEO letter in November.
As the CEO of the UK’s largest equity release advice firm, I think this is good news for the industry and we need to properly engage with the observations from the regulator.
For too long, people have taken pot-shots at the sector based on myths and misconceptions or an outdated understanding of product rates and terms.
However, it’s time for the equity release industry to present lifetime mortgages for what they truly are: a modern, flexible mortgage product, with low rates, penalty free payment options and a multitude of customer protections, in many cases making them superior to alternatives.
Look at the evidence
Interest rates are not high – in Q3 2020 the average was 3.05 per cent fixed for life, which for a product which could run 20+ years represents phenomenal value.
Products are not inflexible – 43 per cent allow interest repayments and 59 per cent allow penalty free capital repayments.
The industry needs to get better at promoting these flexible features and advise customers on payment options – mitigating the impact of roll-up interest, particularly for younger customers.
Many products offer inheritance and downsizing protection as well as wider safeguards – a no negative equity guarantee and guarantee of tenure.
Properly advised, modern lifetime mortgage products are not a last resort, but part of the mainstream mortgage market, playing a vital role helping customers navigate later life.
Societal and individual benefits need to be better recognised and the sector should be a celebrated part of the UK financial services industry.
Fees must not be excessive
We must continue to challenge ourselves on fees, ensuring they are not excessive nor act as a barrier to customers accessing specialist advice.
Adviser remuneration reflects these are lifetime products and the hours of expert support customers receive.
People are not shoe-horned into inappropriate products – less than 15 per cent of people who approach us take out equity release.
Are there exceptions to the rule? Absolutely, we’re concerned about those who don’t transact enough business to know the intricacies of a complex market that includes c.400 lifetime mortgage products.
Advice needs to be personalised and customers challenged on preconceived assumptions. Customers need access to advice that allows them to understand all their options and delivers consistently good outcomes.
As an industry we need to break the silos that exist across the later life market: equity release, retirement interest-only, specialist later-life mortgages or downsizing should all be considered when making recommendations.
Education and information for customers around their options and how to access specialist advice has to increase.
Industry investment in this area should be encouraged and applauded as long as marketing activity is responsible and not driving customers into product silos.
Work is required to better define the later life lending sector and how product types fit within advice models.
However, on the back of a helpful nudge from the regulator, I hope that 2020 will be seen as a defining moment towards the market achieving its full potential and stepping-up to meet vital customer and societal needs.