Sadly, sales of this once popular form of equity release plan have fallen steadily since the first Lifetime Mortgage hit the scene in 1998, reaching an all-time low of 0.2% market share in 2013. So what can this equity release sub-sector do to revive its fortunes?
Space doesn’t allow us to compare and contrast with Lifetime Mortgages (LTMs), but my observations are;
1) Regulatory positioning – the FSA created an anomaly by establishing separate permission for HRPs, whereas LTMs simply fell under the wider ‘Regulated Mortgage Contracts’ permissions.
This had the unintended consequence of less dedicated advisers not bothering to seek HRP permissions, limiting the number of advisers authorised to arrange one. A single equity release permission would create a level playing field and close out dabblers.
2) Understanding – Never mind clients; I’ve met many advisers who can’t get their heads round HRPs and fail to see the circumstances in which they are a more suitable option. Better education and promotion required all round.
3) Product evolution – LTMs have stolen ground from HRPs by emulating features like protected equity guarantees and comfortably beating the sums available under a 100% HRP with enhanced plans for borrowers displaying certain health and lifestyle conditions.
Add to this the retained equity, interest/debt servicing options, downsizing protection, and cash reserves with low minimum withdrawals without requiring further application, revaluation or advice, and the appeal of LTMs is obvious.
Value for money – The main funders, Grainger plc, took a negative view of house prices two years ago, slashing the rate of equity-to-cash conversion. Clearly this was the wrong call and if they don’t improve terms and features, the HRP faces the threat of extinction.
Simon Chalk is equity release technical manager at Age Partnership
