Over sharing platters of melt in the mouth steak, crispy spicy beef and radicchio salad in the Tramshed, in London’s Shoreditch, equity release advisers were eager to share their views on what was causing the quarter three slowdown in business.
It’s down to confidence
The value of lending in the third quarter was £988.5m compared to £1.19bn in Q3 of the previous year, according to figures from the Equity Release Council.
Most brokers agreed that a lack of confidence in the housing market and the economy had cooled borrowers’ interest in releasing equity from their homes.
“When their house price is going up, people feel good,” said one adviser. “They feel positive about taking equity release and will take it if they don’t need to. But when homeowners think that the market is levelling-off they will hold back. Their actions are driven by fear and greed.”
Another broker agreed that borrowers’ perceptions of how the housing market and the country will be affected by Brexit were behind the slowdown in growth.
One adviser said: “Are pensioners better off than they were a few years ago? No. Are there suddenly less of them? No. Are pension benefits any better or are they expected to improve in the next five or ten years? No they are definitely not. All the factors that drive the market are all still in place. It is down to confidence.”
Might of the giant funders
Funders too, are taking a wait-and-see attitude. According to one adviser, three new entrants are all “sitting on the fence” contemplating how the UK’s money markets will be affected by Brexit.
“Funders are coming from international directions – it is not just UK-based interest,” they added. “There are big worldwide pension funds, and other types of funding models.”
Even without new funders vying for a foothold in the market, the supper club members agreed the sector was in the grips of a price war. The winners, said members of the group, were the borrowers, some of whom were waiting for the market to “bottom out”, and also the providers with the deepest pockets.
‘Rothesay basically wants to take over the world’
One view was that lenders had set out their volume targets at the start of the year on the assumptions of growth seen over the last two or three years. But that volume of activity has not materialised. To grab their slice of the pie they cut their rates and have kept cutting.
Insurance giant Rothesay’s influence on rates and innovation, said some advisers, was a dominating force in the market.
“Rothesay basically wants to take over the world,” said one attendee. “Their lending appetite is massive, even knocking Legal & General’s ego backwards. Their appetite is north of £1bn. There simply isn’t enough lending in the market.”
Casualties and victors of a price war
Rothesay was credited with forcing rates down by squeezing the margin providers make. Another broker said L&G had historically been quite protective with its margin. But one adviser said the might of such giants as Legal & General and Rothesay could drive out smaller lenders who offer products to borrowers with different property types at a higher cost.
The adviser said: “The price war worries me. If it carries on into next year some of the smaller lenders might shut up shop because they are not making the margins. The likes of One Family could just turn around and go ‘bugger this for a laugh, we’re off because it is just not worth it’.”
The arrival of new funders like Rothesay, said one broker, has brought about the innovation of early repayment charge structures. A change welcomed by the supper club members.
‘I think gilt-based early repayment charges will be a thing of the past, again through evolution.’
“New money coming into the market has not just had a beneficial impact on rates but on features as well. They have come into a market, where everyone was gilt-based and said hang on a minute, if this is a mortgage why does it look nothing like a mortgage.”
Another adviser said: “I think gilt-based early repayment charges will be a thing of the past, again through evolution.”
Brokers thought the market was two years away from being free of gilt-based structures. “To drive them out you need more product funders who are going to come in on a transparent funding basis. At the moment there is not quite enough traction.”
‘Utterly irrelevant’ qualification needs rapid improvement
Almost all the advisers were in agreement that training and qualifications had failed to keep pace with market evolution. High street lenders have brought out new later life lending solutions, and questions about how families should fund their retirement, access their pensions and pay for their care costs have never been more complex.
“The questions on the syllabus are totally unfit for purpose,” said one broker. “Sometimes they are utterly irrelevant and some of the fundamental knowledge being imparted is completely wrong.”
A modern qualification should teach advisers about estate planning, the Care Act and pension freedoms, rather than test brokers on how a home reversion plan works, they said.
‘We are at risk of being shot like fish in a barrel’
The advisers were pleased that the competency framework for the new qualification had been released prompting one adviser to say “the planets are starting to align”.
But most of the diners agreed that passing a qualification, even an updated one, was the beginning of the journey to becoming a competent equity release adviser.
Advisers shared their positive experiences of training. One broker said the best way to learn how to “cut your cloth” in years gone by was to join one of the big firms such as Aviva.
Its academies were praised for teaching brokers the soft skills that are essential when advising older people on equity release options. Another praised a three-day immersive training course offered by Key in the past.
The big providers, said brokers, should embrace the responsibility for training and bring back these academies.
Improving the qualification and development of advisers’ skills needed to happen quickly, said one broker. “As this sector moves up on the radar of consumers and the media we are at risk of being shot like fish in a barrel because we will not be able to defend the broad competency standards in our sector.”
Hannah Boxshall, Equity Release Supermarket
Lee Mison, Responsible Life
Craig Oliver, Responsible Life
Gary Shipp, Responsible Life
Clive Stainton, Sixty Plus
Gary Webster, Equity Release Supermarket
Stuart Wilson, AIR
David Wright, Sixty Plus