Speaking at the Equity Release Council’s Equity Release Summit 2023 in London yesterday, James Daley, managing director of Fairer Finance, said he was happy to see that gilt-based ERCs were becoming “less and less prevalent” since he last spoke at the event in 2020.
He added: “I think in the Consumer Duty world, they will become harder and harder to defend.”
Daley said he was not sure how they could “be justified” once the rules came in.
He added: “In the end, they are a product feature designed to protect the firm first and not the customer. If you haven’t already started thinking about phasing those out, then probably now is the time.
“We also have to have a clear basis for justifying product pricing, particularly in this higher rate environment.”
Daley said pricing was “much better” but noted that current rates were the highest that the “new era” of the sector had seen for a very long time.
“It changes the economics of equity release significantly for consumers and leaves them thinking about whether equity release is the right option for each customer,” he added.
Daley said that overall, Consumer Duty was “good news” for the sector, adding: “If you can meet the requirements of Consumer Duty, you’ll put yourself in a place where you’re only selling products to customers that are suitable and at a reasonable price.
“Your interests will much more firmly aligned to the interests of consumers which will help continue to build trust in your sector and continue to ensure that equity release plays a part in many people’s lives.”
A transparent service
Lyndsey Fallon, partner at Deloitte, said Consumer Duty would call for transparency around the relationship between funders, product providers and distributors, and how that shaped product design and pricing.
She said firms would need to demonstrate fair value by analysing their data.
“I think that is going to become really important going forward,” she added.
