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LLLE2023: Some equity release decisions made today have ‘detrimental impact’ on borrowers later

  • 23/01/2023
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LLLE2023: Some equity release decisions made today have ‘detrimental impact’ on borrowers later
Advisers need to make sure they are aware of all lifestyle choices which impact older people so that equity release decisions do not have a negative impact.

Speaking at the Mortgage Solutions Later Life Lending Event last week, Adam Johnson (pictured, left), director of New Forest Wealth Management, spoke about some of the expenses faced by older people and misunderstandings around the government’s £86,000 cap on care costs. 

Johnson said the cap was a “fallacy for most people” because it did not count towards the total cost of care at £86,000 a year but rather the amount of money each local authority pays for a person’s care. He said with costs averaging six to seven hundred pounds a week, it would take a person up to four years to reach the cap. 

Tim Farmer, co-founder of Comentis and also presenting, asked how this related to later life lending. 

Johnson said the later life clients he saw were split into two groups of people who were making needs-based decisions and those planning ahead. 

It’s made complicated by a number of clients who say ‘I’m not worried about care because of the £86,000 cap’. 

“In the public’s imagination, the problem is gone, ‘so I’d like to take some money out of my house now so I can go on holidays and gift money to my kids, because I’ve got my £86,000’. 

“From an advice perspective, when I’m dealing with later life clients… the ones who have done equity release in the past, there is that fear of needing to fix something and some of those equity release decisions taken today have a detrimental impact on the options available to my clients when they come to fund their care,” Johnson said. 

He added that for example, the local government deferred payment scheme – which allows homeowners to use the value of their home to pay for care costs – will not take a charge on a property if equity release is in place already. 

Johnson said this could also affect people who want to protect their assets when paying for care by writing it into their will. 

Johnson said he made sure clients met with financial advisers as well as equity release advisers to make them aware of how this could impact their options.  


Mitigating future complaints 

Farmer said this meant advisers needed to be proactive, especially in relation to Consumer Duty. 

“The onus is not on the individual to prove there is an issue. It’s on you, the adviser, to prove that there wasn’t an issue,” Farmer added. 


Changing vulnerability 

Farmer said as people aged their processing speeds slowed down, so advisers should consider how they present information to older clients. 

He said a person’s processing speed started to decline at the age of 30, but stayed fairly consistent up until the age of 50. 

Farmer added: “The average processing speed of a 75 year old is 25 per cent that of a 20 year old. And it’s less than 50 per cent that of a 50 year old. 

“After a 30 minute period, a 70 year old can only remember about seven per cent of that of a 50 year old.” 

Johnson said: “We know that’s going on, we can’t have a sales process or an advice process that’s the same for everybody.” 

Farmer said capability and resilience changed over the years which could make people vulnerable, and changes to health could further impact this. 

Farmer also said 60 per cent of fraud committed against older people was done by family members, which called for a rethink of bringing family members in when giving advice. 

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