It said it is concerned that clients are taking out lifetime mortgages based on their adviser’s house price assumptions, when their debt could overtake any property value rises, barring them from further equity release.
Bridgewater research showed advisers often cite expected annual house price growth of 8% or 9% as the norm in the UK. This could make lifetime mortgages the most suitable product for equity release, as the level of rolled-up interest debt would be less than the increase in house price.
However, the home reversion provider said that the assumption is based on analysis of the last 40 years, which takes in the significant wage and retail price inflation of the 1970s.
Peter Welch, head of sales and distribution at Bridgewater Equity Release, said: “This period completely distorts the house price picture and to suggest that prices are going to continue to rise by anything like the levels we saw immediately pre-credit crunch to us seems ludicrous.”
He said house prices are likely to remain flat over the next few years with growth of around 4% per annum after that, with the million-pound London market the only sector likely to see rises of up to 9%.
Welch said: “These false assumptions of house price growth by advisers could spell real difficulty for those clients who are recommended and sold lifetime mortgage products.
“Just over the last few years, given falling house price levels, there will be many customers with lifetime mortgages who will be unable to access any further equity in their properties because their debt levels will have risen, house value will have fallen, resulting in an increase in their mortgage LTV.”
He added: “It is an issue which would not have arisen with a home reversion plan which delivers far greater value in a level and falling house price environment given that it shifts the risk of such changes in house price on to the provider and does not keep them with the customer.
“We would urge all advisers who are overly bullish on house price growth to revisit their own analysis of the situation and to make sure they provide a transparent and unbiased view to clients on where the price of their house is likely to move in the short, medium and long term.”
