A qualitative research paper by The Financial Services Consumer Panel (the panel) of 45 participants examined the process leading up to the sale of an equity release product and the feelings thereafter.
Of the respondents, 26 took out equity release while two opted for a retirement interest-only (RIO) mortgage. A further 13 participants were family members who were closely involved in the sale process either during or afterwards and of these, 11 opted for equity release while two chose a RIO. Four considered a mix of later life lending options.
For participants, equity release was seen as the only or preferred option either because it felt right, downsizing was seen as “unappealing”, or they did not see banks as an option due to their age.
Others momentarily considered borrowing from family or friends, some did not want to rent a room out. Some overlooked the idea of a loan or remortgage for fear they would either not meet criteria or did not want to make monthly payments while retired or on a low income.
This was found to have shaped their decision even before speaking to a professional.
Participants were found to have varying degrees of equity release knowledge prior to taking it out.
This was either informally through Citizen’s Advice Bureau or a bank adviser, while others sought professional advice from independent financial advisers (IFAs). Those who went to an IFA tended to already be strongly considering equity release.
It was found that although alternative finance was discussed with a professional, this was often to discourage the option and push for equity release instead.
Online forms were primarily used to begin the equity release sale process and some participants consulted family before taking the product. Others chose not to as they did not want to reveal any financial struggles.
According to the study, the decision-making process was quick, with many taking equity release two to three months after initially enquiring. Some took up to two years where the buyer was uncertain or the financial need was less urgent.
Those who did not take out an equity release product ended up using alternative financial options such as savings, selling assets or just going without. They said they realised the potential downsides of equity release but would not write it off in the future.
Understanding the product
Participants did not seem to fully understand all the details of equity release at the point of purchase, though many had the understanding that the value of the home would go to the provider and their inheritance would be reduced once they died.
They understood that if they did not make monthly payments, the interest would be compounded but the report said this was “not always fully appreciated”.
Different product features were harder for some to understand. For example, the difference between a drawdown and a lump sum or restrictions around terminating a product.
Participants said both overt and covert techniques were used to guide decisions, with some saying they felt pressured to take out equity release or pushed to borrow more than they originally intended.
Some reported they were unaware of their product’s interest rate or were unable to find paperwork after taking out equity release.
Most participants went to an agent for an equity release specialist company over an IFA as they believed the latter would be more costly.
Those who did go to an IFA tended to already have access to one as they were wealthier, or they knew of one through their social circle. For those who did go to an IFA, some reported not realising when discussions on equity release became formal and or when they were informal.
As some had already decided on equity release by the time they spoke to a financial expert, conversations tended to be to reassure them of their choice or to seek the best deal.
The report said: “It appears that overall, consumers believed they received comprehensive advice when taking out equity release. However, the process of taking expert independent advice was often flawed, for several reasons.
“Examples included the consumer not fully engaging with the advice, not fully understanding the intricacies of equity release, not fully trusting experts to act in their best interest or finding the paperwork hard to digest.”
Participants reported limited contact from providers, agents and advisers after an equity release purchase with the exception being an annual statement or marketing to encourage a further drawdown or additional products.
Most participants said a review every one to five years would be appropriate, but concerns were raised around potential costs.
Just one respondent proactively reviewed their equity release product after purchase.
Although the majority stuck with their choice, the few who thought about changing or cancelling the product felt it would be easy to do so, just expensive. Others felt they were unable to change the terms once signing.
Some suggested the use of a portal like an app or helpline to monitor the product and accrued interest.
Overall, the report said participants had mixed feelings about their equity release product.
It added: “For those who considered the product to be a bad solution, there was consternation about their swiftly disappearing inheritance and their culpability in the decision making.
“For those who considered the product to be a good solution, some still felt residual discomfort with their product.”
In terms of financial and emotional outcomes, participants reported both positive and negative feelings.
The panel put feelings of emotional harm reported into four categories: a sense of personal loss; a feeling of guilt; feeling financially ‘stupid’, inadequate and naïve, leading to embarrassment; and anxiety from a dawning realisation of the long-term financial impact.
Factors such as feeling vulnerable to pressure, being single-minded or having less time to decide led to feelings of emotional harm.
Advice in hindsight
In hindsight, participants said they would like the option to review alternatives before committing to equity release. They also advised doing thorough research beforehand, discussing with family, speaking to an IFA about equity release implications or taking the product out later in life.
The report said: “Overall, many participants stated that they had not considered the full ramifications of taking out equity release.
“Most notably, these related to restrictions pertaining to further property purchases, as well as repayments in terms of charges and fees, including those for further drawdown. They noted that the language used by advisers, or found in associated literature, could be challenging to comprehend and contain jargon which they did not readily understand.”
Some said their experience could be bettered with more guidance including face-to-face meetings and more opportunities to ask questions.
It was also suggested that more information could be given on how to choose qualified independent advisers and ways advisers could highlight alternatives to equity release. Participants also said there could be more safeguards for vulnerable customers and a nomination of who should receive documentation before and after a sale.
A widely available factsheet on equity release was also proposed by participants, as well as several reviews before and after a sale.