We need a change of mindset in equity release, argues Peter Welch, head of sales and distribution at Bridgewater Equity ReleasePeter Welch, head of sales and distribution at Bridgewater Equity Release
The recent market figures from SHIP for equity release advances in quarter three this year were considered to be particularly strong. Lending levels were up to £206.2 million from £184.9 million in the previous quarter, and the number of customers also grew to 4,148 from 3,710.
Positive as these figures are there is no disguising that the previous two quarters’ figures were some way off quarter three, and therefore if we take 2011 as a whole (anticipating what quarter four might bring) then it’s probably safe to say that levels look likely to be just down on 2010. However, there has clearly been positive movement in the months of July, August and September and it is to be hoped that we can, not just sustain these numbers, but also improve on them considerably.
From Bridgewater’s perspective we still wait to see a period when home reversions push out of their 2% of market-trend. We are constantly told that reversions should actively be considered in at least 20% of all equity release cases and yet we are still nowhere near this figure in terms of actual business. The reasons for this are many and varied, and without going over old ground, we need to see something of a sea change in regulation, marketing, understanding and attitude.
Looking again at the SHIP figures it is once again time to renew how we push the overall marketplace forward, particularly at a time when there is huge latent demand for equity release. To my mind it is all about producing a far stronger consumer connection with the concept and then the products we can slowly see that consumers are willing to use the equity in their property in order to repay debt, however are they more willing to use it for other means such as supplementing their pension income, down and upsizing homes, funding long-term care? It is these areas where we need to make the connection a stronger one.
I fully believe that consumers like the solution equity release provides, yet they are not too enamoured of the products themselves. The challenge is to match the consumer needs to the solution, and there are plenty of ways in which an adviser can do this. For example:
* What about when a client wants to trade up their property in retirement? The adviser can point out that this can be achieved by using a home reversion or a lifetime mortgage to fund the difference between the available equity from the sale of the existing house and the aspirational home for their retirement. Another situation where this is a possibility would be if Mum and/or Dad wanted to move closer to their children, who may now live in a more expensive area.
* Secondly, what about using equity release to bring forward inter-generational gifting, for example, to help with deposits for house purchase, fund educational costs or help establish new business start-ups. Many people would rather watch their gift being used when it is needed.
* Divorce amongst the over-55s is rising and equity release can be used to help fund the divorce settlement.
* The need for greater funds to pay for care or assistance in later life is growing and equity release can be used to deliver this, while also allowing the individual(s) to remain within the family home for domiciliary care.
* Finally, as mentioned above, equity release can be used to bridge an income gap in retirement. The cost of living is not going down and with inflation at such high levels, fixed retirement incomes are not going as far as they used to.
The point is that we’re some way off the majority of the public making these connections unprompted. In the short-term I see it as the responsibility of those advising customers to highlight equity release as a potential option, and these are not just ‘financial advisers’ but those in professions such as solicitors, accountants, estate agents. However, to do this effectively, these groups need to:
* Understand that equity release can be a ‘potential’ enabler for customers and their families to achieve their goals.
* Reassure consumers that the products and the sales process have inherent safeguards and are safe.
* Know where to send a customer who wants more information or indeed, to transact.
Another problem for equity release has been that, for regulatory purposes, it has sat in the ‘mortgages’ camp, which means that ‘holistic financial planners’ have tended to ignore it, or at best see it as a ‘last resort’. Which I think is being interpreted as ‘never to be used’ when in fact it means the adviser explores all other alternatives first before allowing customers to make an informed choice about which type of product they use to access some of their formerly illiquid wealth. To me this is a bit like a fee-charging investment adviser not considering National Savings products for a client’s portfolio because they don’t like the colour of the current political party in government – the relevance of the product is not correlated with the politics of the incumbent government. It’s an extreme example, but you catch my drift.
Therefore we need to change mindsets. If we move to an environment where all of the financial community sees equity release as a viable solution for the needs of many consumers then the sector will truly move to the next level in terms of business volumes and public perception.
