For many years the equity release sector has had to fight a number of prejudices and popular misconceptions about the products themselves and, in particular, the customers who take them out. There has often been a lazy assumption that equity release advisers and providers are somehow preying on some of the most vulnerable people in UK society with the sole intention of stripping them of their most valuable asset leaving them penniless and out on the street.
Needless to say that this is a very long way from the truth and the industry has worked particularly hard, especially under the auspices of both SHIP and now the Equity Release Council, to counter those sorts of perceptions. The view of perceived ‘customer vulnerability’ with equity release is however one that can be difficult to shake and, to be frank, has not been helped by the regulatory view of equity release over the last 10 years.
As we all know ever since the statutory regulation of lifetime mortgages back in 2004, and the subsequent regulation of reversion plans in 2007, both the FSA and FCA have deemed equity release to be a ‘high risk’ product area. This has meant there has been an almost unshakeable view put forward that all equity release customers must be placed in the ‘vulnerable’ bracket and the implications for the sector of this have been quite obvious. Many consumer groups for instance subscribe to this view and often warn individuals not to take out equity release plans in any circumstance.
Clearly this makes life difficult as does the unwanted badge that equity release providers are somehow ‘lenders of last resort’ which again has followed the industry around for many years. Whilst the regulated nature of equity release has helped considerably in this area I often feel that both advisers and providers not only have to be 100% certain in their advice recommendation and lending decision but also have to provide far more evidence to prove this than other operators in other sectors.
Of course this is not really a negative given that equity release stakeholders are some of the most compliant and, shall we say, regulatory focused players in the market. Any advisory firm that has been involved in this sector for any length of time will know only too well the importance of documentary evidence to support the advice and recommendation – we are not just talking about ensuring the regulator is kept happy but also, in a market where family members can feel particularly aggrieved, to ensure that every single decision can be justified.
While we all might accept that equity release customers are slightly higher-risk than those taking out a normal residential mortgage, the notion of ‘vulnerability’ is one that should now perhaps be put to one side. After all, everyone involved in the advice and sales process has to ensure that the client is not vulnerable before they proceed – again if this can’t be proved post-sale then the consequences will be high for all concerned. Today we must really question who the client is really vulnerable to? Is it more likely to be a rotten equity release adviser only concerned about their commission or is it much more likely to be a family member attempting to push them into equity release as a means to secure the asset/cash early? Indeed, in this latter situation one would hope the adviser would be able to act as a brake on those seeking to gain from their relative taking out an equity release product.
The final point to make is that clients who might well be looked at as ‘vulnerable’ are often nothing of the kind – they are actually individuals who are looking for solutions to particular problems and it just so happens that equity release is the most suitable solution for them. Educating society on this remains a key focus for everyone in the equity release sector – perhaps we could even say that in many cases people are likely to become increasingly vulnerable because they are not offered the opportunity to sort out such problems through equity release. The market has a duty to push the message that near or at-retirement individuals who own their own homes do have an option and by introducing them to equity release they could be staving off a far more vulnerable future.
Chris Prior is manager, sales and distribution at Bridgewater Equity Release