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Equity release penalties too high and complex in Consumer Duty world – Daley

  • 23/05/2024
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Equity release penalties too high and complex in Consumer Duty world – Daley
High and complex equity release early repayment charges (ERCs) were criticised during the sector’s annual conference for flying in the face of Consumer Duty regulations.

James Daley, managing director of consumer champion website Fairer Finance, said the equity release market should “embrace” the new set of regulations that would drive firms to “do the right thing”.

Consumer Duty, said Daley, asked challenging questions of equity release firms’ business models and the way they did business.

Speaking during a panel session at the Equity Release Summit in Westminster, he said: “You have to step out of the way you have done things for the past 20 years.”

He added: “Gilt-based [ERCs] are a pet hate of mine. They still exist. I’m delighted to see they are starting to disappear, but they are still there in the market and I don’t think there is any way in the Consumer Duty world that you are going to be able to make [gilt-linked ERCs] stack up [when] meeting the customer understanding test of Consumer Duty. And I still think some of the other ERCs are a bit high where we have moved to flat fees.”

Daley also wants to see providers honestly disclose how much money they are making from a transaction from the margin they make to the commissions paid along the supply chain.

“The fair value reports we’ve seen from equity release providers are not honest enough at this stage,” he said. “How much money are you making? Let’s not just say it’s really complicated, we can’t put a number on it. Somewhere in an organisation that is going to be very clear.”

Daley said firms need to think about where they are making the most money and whether customers are still getting fantastic value.

“Where is it right to sharpen up our offer to give the best outcomes for our customers?” he added.

In response to an earlier point made by panellist Henry Tapper, chief executive of AgeWage, who told delegates: “don’t worry about high interest rates, worry about your customers because they need money,” Daley said high interest rates posed a challenge for the sector.

“The value is very different for customers in a 5% interest rate environment versus a 0% interest rate environment,” he said. “You’re going to rip through your equity twice as quickly. Customers should be encouraged if they can to pay some of that interest down to try and preserve more of that wealth.”

In April, Fairer Finance launched an equity release handbook in conjunction with the Equity Release Council (ERC).

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