Andy Wilson, director of Andy Wilson FS, said the Financial Services Consumer Panel’s study sample size of 45 respondents was “very small” compared to the more than 40,000 borrowers who engaged with the later life sector last year.
The qualitative research found that while borrowers who engaged with the equity release market had mixed feelings, many would have liked to discuss other later life finance options further or be given access to more information.
Andrew Gething, managing director at MorganAsh agreed that the sample size was small and said it consisted of people who were paid to take part, adding this was “not truly representative”.
He said: “However, the research remains valid and this calls for the industry to collate far better data on vulnerability and consumer outcomes.
“This means the systematic recording and objective assessments of consumer characteristics as well as outcomes, in order to provide reliable data for all parties and fundamentally ensure that the customer is always given the right advice and provided with the right product for their needs.”
David Burrowes, chair of the Equity Release Council (ERC) welcomed the study and its recognition of where existing market standards had contributed towards successful outcomes.
Representatives from the ERC’s main and standards board were involved in the study. The summary of findings was shared with them, and they provided additional insights.
Burrowes said: “While equity release is not suitable for everyone, the majority of customers say it has made a substantial difference to their quality of life.
“Having launched version 10 of our standards in March, we are committed to building on 30 years of standard-setting work, to ensure as many customers as possible are well served by products which offer the strongest protections of any later life property loan.”
Vulnerability awareness
Wilson said the review was “not all damning and negative” as it put an emphasis on the vulnerability of potential applicants.
He said: “You could take the viewpoint that anyone needing to borrow in later life comes with a degree of vulnerability simply by being financially compromised.”
Of the 45 participants, 13 were said to have limited incomes of up to £20,000 a year while all except one had incomes between £20,000 to £50,000. The income of one participant who chose a retirement interest-only (RIO) product and described it as a “bad decision” was not recorded.
Wilson said: “For me, this is not a typical equity release client, and represents only a very small number of the cases I advise on.
“Far more are borrowing for other reasons other than supporting income: home purchase is my biggest reason for taking out a plan at the moment, followed by the more common home improvements, gifts and paying off existing mortgages.”
Gething said the report highlighted important issues for the market and how it implements strategies for vulnerable customers.
MorganAsh developed an online vulnerability assessment tool to help firms comply with Financial Conduct Authority (FCA) regulations.
Gething said: “It is important to understand the consumer’s characteristics and vulnerabilities at the point of sale, to ensure that best advice is given, and the transaction is appropriate. This raises a need for a systematic way to screen all applicants for products, as part of the advice process.
“Many in the industry are only looking at vulnerability when it is highlighted to them, from existing customers, whereas every customer really needs to be screened in this way and right at the start of the process.”
A fresh perspective
Will Hale, CEO of Key Later Life Finance, said fresh research which helped to build broader understanding of the market was “always welcome”.
Hale said Key already focused on making sure products were suitable for borrowers and said the group was “particularly mindful” of achieving good outcomes for those who are vulnerable.
He added: “All our customer facing staff are trained to identify customers who may be vulnerable and empowered to put in place bespoke engagement approaches where required – including using our team of Vulnerability Champions to offer specialist guidance.
“Our advisers are highly qualified experts in this sector and if equity release is not right for a particular customer, we will tell them.”
A thorough approach
Some respondents in the study indicated that they were made to feel as though equity release was the only or better option.
Wilson said advisers were always required to consider alternatives such as a RIO, but said the affordability assessment often “killed enquiries dead in the water”.
Wilson said he began all advice processes with a Zoom call then followed up with a detailed email regarding the client’s options as well as an equity release guide from Money Helper.
After this, the customer’s suitability is reviewed while reasons for the dismissal of alternatives are recorded and explained.
Wilson said he felt his reports were plain and understandable but acknowledged misunderstandings could still happen. To get around this, he attaches a questionnaire to each report which clients must complete before an application asking if they understand the costs, potential debt and risks.
He said: “This forces them to at least read the relevant sections of the report to get the information and then articulate their responses.”
Wilson condemned the practice of “hard selling” and said waiting for clients to be fully ready for equity release was always better.
The study found the timeframe between first enquiry and equity release sale for many borrowers was two to three months. Wilson said he had clients who waited as long as five years to complete.
“There are many possible good outcomes, which the report details, but I would stress better provision of realistic drawdown reserves, proper exploration of alternatives, and challenging client assumptions. Then later, staying in touch with clients and reviewing the advice at regular intervals,” he added.
