Prepare your customers for all eventualities, advises Peter Welch, head of sales and distribution for Bridgewater Equity Release
The only two certainties in life are death and taxes, as the old adage says. Note that ‘rising house prices’ are not included in this summation of foregone conclusions, yet the behaviour of some borrowers and lenders before the global financial crisis seemed to suggest that continued property appreciation was a given.
Whether it was affordability-stretched first-time buyers hoping that house price growth would provide a safety net for their leap of faith, or lenders offering suicidal loan-to-value amounts, it was easy for many to assume the good times would continue to roll. Those of us long enough in the tooth to have seen it all before adopted a more sensible approach, knowing that these things are cyclical and that the bubble was likely to burst at some point.
But despite a backdrop of anaemic economic growth and the well-publicised downsides of the credit crunch, there still seems to exist among the UK population an unswerving mind-set that one’s property remains some kind of mythical money-making tree that will protect its owners from any financial harm.
This is where the role of the adviser is paramount. Not only must advisers recommend the most appropriate product for the here and now, but they must also consider the potential financial destiny of their clients. And while no-one expects advisers to be able to stare into the tea leaves and accurately forecast future economic trends, base rate movements and house price growth, managing customer expectations remains a vital part of what they can, and should, do.
This doesn’t necessarily mean that advisers have to portray a glass half-empty scenario until the end of days, simply that it is worthwhile presenting the full range of eventualities to clients and dampening any unrealistic expectations that property growth represents some kind of golden ticket.
Such expectation management is particularly important to equity release advisers to ensure that older homeowners aren’t pinning all their hopes (and importantly their heirs) on one last whopping payday. Equity release remains a viable and attractive option for many in later life, it is simply a case of doing the likely maths for your clients to ensure they are not too disappointed and familiarising them with the prospect that house prices are likely to remain (at best) stagnant for some time.
This is evidenced by the slump and subsequent plateau we have witnessed since 2008. House prices may have remained surprisingly resilient over the past 12 months, but December brought further falls according to the major house price indices, with Halifax reporting a 0.9% decrease and Nationwide a 0.2% drop.
Looking ahead, economists from both lenders paint an uncertain picture for 2012 and beyond, with stability being about the best case scenario and a Eurozone meltdown further affecting consumer confidence being the least desirable outcome. The extent to which households choose to reduce existing debts is also likely to have a significant bearing on how events unfold. Deteriorating labour market conditions and high inflation are already impinging on household spending and wider austerity measures are limiting public expenditure.
Any adviser worth their salt is well aware of this sombre scene already, but it is important to remember that your customers won’t always be as up to speed as you are, particularly older homeowners who might not have their finger on the property pulse. Think less of yourself as the bearer of bad news and more as the voice of reason helping your customers to make correct and informed decisions.
None of us have a crystal ball enabling us to accurately predict future house price trends and there’s nothing to say we won’t be pleasantly surprised by growth spurts again some day, but by preparing your customers for all eventualities, you are doing the best by them.