Equity release has come of age. Advisers and providers alike are nothing if not familiar with the stringent regulation surrounding the modern generation of equity release products and the increasingly flexible range of options they offer.
There are sound reasons why we can provide a high degree of reassurance to clients concerned about the perceived pitfalls of equity release and the negative reputation it may once have merited.
And clients certainly need that reassurance.
Aviva's regular communication with advisers suggests that a simple lack of understanding about the product is preventing many people from considering it as a mainstream element of their retirement planning.
The same concerns arise again and again. So much so that we've compiled a 'top ten' misconceptions which advisers regularly need to address. How many have you encountered?
1. I won't own my own home any more, so I might lose it
A surprisingly common misconception. Clients are regularly relieved to hear that a lifetime mortgage means they remain the owner of their home.
2. I don't want another mortgage now. I can't afford repayments
The downside of discovering that the most popular equity release product is actually a mortgage! Doubts are often dispelled once the client learns that no repayments are normally required until the client dies or goes into long term care.
3. I don't understand how it works. It sounds complicated and I might get it wrong
In an age of online self-service, many clients will be relived to know that equity release is available only as an advised product, and that they will also need to appoint a solicitor.
4. I don't want my children to be inheriting a debt
The No Negative Equity Guarantee invariably comes as a pleasant surprise to clients with little prior knowledge of equity release products.
5. I won't be able to leave anything to my children or grandchildren
Most advisers would agree that every effort should be made to encourage good communication between family members before a client opts for equity release. Once the subject has been broached, potential beneficiaries will have the chance to clarify their true priorities - which may well be the present comfort of their parents or grandparents. And, of course, clients will have the option to take up a product with equity protection to provide an 'inheritance guarantee'.
6. I don't want to be dealing with companies I can't trust
Not all equity release providers are likely to be unfamiliar - clients will frequently have the option of dealing with a name they already know. They may also draw comfort from the fact that all providers must be authorised by the FCA, and many are members of the Equity Release Council.
7. What if my circumstances change? I don't want to get saddled with early repayment charges
Early repayment charges can indeed be expensive, but in some circumstances they won't apply. Options such as voluntary partial repayment have greatly enhanced the flexibility of equity release products. The chances are that you will have little difficulty in introducing your client to a product that suits their needs.
8. I'm worried doing this would affect my benefits
This can be an issue - and although you can reassure your client that their State Pension and Disability benefits wouldn't be affected, other means-tested benefits may be. You should direct them to the Benefits Agency, Citizens Advice Bureau or Local Authority. Clients also need to understand that even though the amount released isn't taxable, their tax position may be affected.
9. I might not want to stay here forever. Wouldn't equity release tie me down to this house?
Again, many clients are surprised to learn that portable equity release products are available, depending on a number of criteria including the value of the house they may be moving into.
10. Won't it cost a fortune?
Definitions of 'a fortune' vary dramatically from person to person, but there's no denying that equity release can be expensive. Sometimes going though the costs in a clear, open manner will be all that's needed to reassure the client there will be no 'hidden extras'. But it's important that they understand how the interest on a lifetime mortgage keeps on compounding, and just how substantially the debt can grow – especially over the longer term.
To put costs into perspective, it may be valuable to go through example scenarios to show how varying levels of house price fluctuation over time would affect the equity potentially remaining in the client's home.