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Lack of holistic advice ‘worrying’ issue for later life borrowers – research

  • 16/01/2020
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Lack of holistic advice ‘worrying’ issue for later life borrowers – research
Older homeowners are increasingly using their property as a financial asset, but many people have a limited understanding of products and services available – and there remains a distrust of equity release, research has found.


A study conducted by London School of Economics (LSE) for Family Building Society also revealed there was a significant element of chance about product recommendation depending on which adviser the client chose to see.

The LSE report noted longer-term costs and charges were often not transparent, and advice was rarely coordinated to take all the potential tax, legal and family considerations into account.

And when older borrowers did take equity out of their property they rarely used it to fund care, instead cash was used for living expenses or discretionary spending.


Availability of advice

The LSE research included a survey of 956 of the building society’s older borrowers and savers, focus groups with customers, and interviews with government and industry stakeholders.

Customers were generally more affluent and located in the south of England with properties typically worth around £250,000.

One of the most important issues highlighted by researchers concerned the availability, quality and siloed approach of advice.

“A decision to withdraw housing equity should ideally be looked at in the context of a household’s overall financial and legal situation, as it could affect their tax position, inheritance plans, etc,” the authors wrote.

They continued: “Consumers however have considerable difficulties in obtaining advice about the full range of borrowing options because of different training requirements for advising on different products – a topic being examined by both the industry and regulators.

“It is even more difficult to find professionals who can give genuinely holistic advice about how these products interact with investments, pensions, tax and inheritance.

“This is worrying since all our interviewees stressed the need for high quality advice especially given the long-term nature of the contracts,” they added.


Downsizing not attractive

Furthermore, despite downsizing often being seen as a key way for older homeowners to either afford future life or care requirements and also move the housing market along, there appeared little appetite for it.

The majority, 70 per cent, of respondents said they wanted to be living in the same home in five years’ time, although this dropped to 48 per cent in ten years’ time.

In contrast, just ten per cent of respondents said they wanted to live somewhere smaller in five years and that only increased to 20 per cent in ten years’ time.

Higher transaction costs, especially stamp duty, and inheritance tax rules around the value of homes also discouraged moving.

The report concluded that withdrawing equity was a natural continuation of the housing-finance journey for older homeowners, and that it presented little risk for the well off.

But Kath Scanlon, distinguished policy fellow at LSE London and co-author of the report, added: “There was not a great deal of understanding of the products available and scepticism of equity release especially.”


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