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Time for a regulatory revolution in the equity release market – Andrea Rozario

by: Andrea Rozario, chief corporate officer, Bower Retirement Services
  • 01/12/2015
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Time for a regulatory revolution in the equity release market – Andrea Rozario
Regulation of the equity release market is in drastic need for an overhaul, writes Andrea Rozario, chief corporate officer at Bower Retirement Services.

In the world of finance, talk of regulation may be the quickest way to spark a debate. Some people want it loosened, others want it tightened, but all of us want regulation to be regularly reviewed. In the realm of equity release, regulation has rightly played a major role for many years; the dark years before the millennium are gone but never forgotten. However, many within the industry are now calling for the regulatory structures that rule our industry to have a serious overhaul – and I would tend to agree.

The issue of regulatory revolution was raised in a recent White Paper sponsored by the Equity Release Council looking at the upcoming review by the Financial Conduct Authority (FCA) into the market. The White Paper calls for the FCA to consider the merits of some rather simple changes.

First and foremost The Council is correctly calling for the equity release market to no longer be defined as ‘higher risk’ and every customer to be deemed ‘vulnerable’. It asserts that ‘these attitudes are outdated and does not reflect the situation in the current equity release market’. So, despite the industry-wide progress, we are still chained by regulatory rhetoric that is stuck in the past.

‘Vulnerable’ customers

It is true that all customers must be protected and that is why there is a strong argument for equity release advice to remain mandatory, for now at least. However, to define such a broad cohort of potential customers with a word as loaded as ‘vulnerable’ is unhelpful and inappropriate. Equity release is open to homeowners aged 55 and over, so with the average person living a shade over 80, there’s an entire generational divide between certain customers.

One client may indeed be ‘vulnerable’ but the vast majority of clients we meet at Bower Retirement are well-informed, savvy and entirely aware of the risks and potential benefits equity release brings. What’s more, a good adviser would not continue with the advice process if a ‘vulnerable’ client could not grasp the complexities of equity release, or if an equity release product is not the right fit for their financial situation. With older borrowers struggling to obtain finance in the mainstream mortgage market, it is wholly unhelpful to deem all homeowners aged 55 and over as ‘vulnerable’.

Determining risk

Now to the question of risk. The FCA deems equity release to be ‘higher risk’ but The Council, myself and many other industry commentators also see this as a poor description. How can equity release be deemed a ‘higher risk’ product when the lifetime mortgage actually comes with more safeguards and protections than a standard mortgage? The amount of ‘risk’ equity release involves can only be viewed case-by-case and may be an entirely safe option for one person but a less than desirable one for another. Those who do not fit the criteria as a suitable candidate for equity release should be advised to seek other avenues.

Equity release is only high risk for those who are not in the financial position to benefit from it, and that is why expert advisers are essential to avoid this issue. Of course there are risks and the importance of their impact is determined by the client’s view and requirements, both of which are essential topics covered in the advice process.

The Council and everyone in the industry should support a widespread regulatory review. The current regulations are robust but are tainted by a hangover from the past that hurts advisers and clients alike. Equity release is experiencing a revival and a regulatory revolution could help to further improve the lives of the over-55s.

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