Which?, the largest consumer body in the UK, does a lot of hard work in protecting consumer rights and offering independent advice to consumers across a multitude of markets.
It is essential to have an organisation like Which? supporting those who matter most in every market – the customer. However, despite the great levels of respect that Which? commands, they have been guilty of an unbalanced approach when reviewing equity release, simplifying a growing and flexible market. To be a true ‘consumer champion’ Which? and their peers must re-evaluate and look at equity release through a clean, impartial lens.
The classic argument against equity release boils down to an opinion that lifetime mortgages are ‘too expensive’. Which? even admits that the ‘problem’ with equity release comes down to ‘the cost and charges’ and that’s about it. Unfortunately, this criticism of the market is almost always devoid of fair comparison and reason. How is one supposed to judge if something is ‘expensive’ if there are no true comparisons made to illustrate the point?
Which? compares equity release with what they call ‘standard mortgages’, a comparison that can be found in every anti-equity release piece, saying that the interest charged on equity release products are ‘much higher than standard mortgage rates.’ This comparison is unsuitable for three reasons:
Firstly, due to the impacts of the Mortgage Market Review, the over-55s are finding it much harder to get a ‘standard mortgage’ and rejection because of affordability issues is not uncommon. Therefore, for those who are being turned down a ‘standard mortgage’, a comparison of interest rates between ‘standard mortgages’ and equity release is wholly irrelevant.
Secondly, those who denigrate equity release seem to fail to understand the impact of fixed interest rates and how comparing the interest rates of lifetime mortgages with ‘standard mortgages’ is another unfair comparison. The fixed interest rate of a lifetime mortgage is indeed higher than the variable rate, or indeed the shorter term fixed rate, of most ‘standard mortgages’, but the interest rate is fixed for life whereas it would be very difficult, nigh on impossible, to get a ‘standard mortgage’ with a fixed interest rate for life; even more difficult if you happen to be over 55. These differences between the products within the equity release market and the traditional mortgage arena make it difficult, and often irrational, to compare in terms of expense. Lifetime mortgages are designed, as the name suggests, to run for life which may be a longer period of time than a ‘standard mortgage’ and the difference in interest rates and pricing are altered to reflect this fact along with the added safeguards built in to protect the customer.
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Thirdly, because a lifetime mortgage interest is ‘rolled-up’, the customer has no expense to bear through the lifetime of the loan. There are no mandatory regular payments to be made with any equity release product, unlike every ‘standard mortgage’, so to compare the two on an equal footing is inappropriate.
As well as this insistence to make unfair comparisons in terms of expense, those who continue to oppose equity release refuse to acknowledge the advancements, flexibility and modernisation that is continually being added to the products and services the market offers. Read any article that places itself in a position opposing equity release and you will be forced to assume that equity release describes one product of high interest rate that must only be ever used as a ‘last resort’. The authors of these articles are either completely ignorant of the range of products and safeguards that equity release currently offers, or they believe that omitting the facts is a convenient way to make their stance seem reasonable. The increasing popularity of drawdown products, the introduction of serviceable lifetime mortgages and the ‘no negative equity’ guarantee has made equity release a much more flexible, safe and, for many, appealing option.
According to figures released by the Equity Release Council, 66% of new equity release customers in 2014 chose drawdown products, in contrast to just 34% of new customers choosing the lump sum option (fig. 1). The drawdown option allows those who take out a lifetime mortgage to manage their expenses in a more flexible way and ensure that they are only charged interest on the money they release – Which? fail to mention drawdown products.
With the introduction of serviceable lifetime mortgages, customers are able to eliminate, or at least limit, the impact of rolled-up interest. Introduced in 2006, serviceable lifetime mortgages have gone a long way in making equity release a more flexible option for the over-55s. – Which? fail to mention serviceable lifetime mortgages.
The ‘no negative equity’ guarantee, which comes with every equity release product that fits the criteria laid down by the Equity Release Council, ensures that no matter how much you owe, your loan will never exceed the value of your home which means there will be no debt left to any family members. – Which? fail to mention the ‘no negative equity’ guarantee.
It is an unfortunate reality that those who continually berate and undermine equity release appear to be stuck in the past. Equity release has modernised and improved over the past decade, it is a shame that Which? fails to recognise this.
