Nigel Hare-Scott talks us through Home & Capital's home reversion plan and highlights the benefits it can bring to the retiree
Tell us about your product? How does it work?
Home & Capital's home reversion plans enable homeowners to raise income and/or capital from their property and thereby improve their lifestyle in retirement. Under the terms of the plans, homeowners can sell a share in their property for a cash sum but have the right to remain in their home on a rent-free basis for the rest of their lives. Funds can be released as a cash lump sum or as stage payments over a chosen number of years.
Because no rent is payable, the price paid is at a discount to the market valuation with the amount payable being variable with the age of the homeowners. Being a SHIP-approved product, homeowners have the safeguards of security of tenure for life and the right to move without financial penalty.
Who is it aimed at?
Home & Capital's home reversion plans are aimed at homeowners who are either in or approaching retirement. The plans were originally developed nearly 30 years ago when Home & Capital introduced the first cash lump sum based plan. It is only in recent years that the plans have been considered part of the separate financial product sector, which has become known as 'equity release'. The average age of those entering into plans has been steadily reducing. The age eligibility is now 60+ although it is unusual for homeowners to participate before they are aged at least 65.
The plans are not designed solely for those in urgent need of cash for, say, home improvements and/or debt repayments. It is now becoming recognised that equity release is an excellent method of balancing homeowners' asset portfolios in retirement.
How does it differ from other equity release products currently on the market?
Home & Capital's home reversion plans are different in that they are not mortgage based. The outcome is not influenced by interest rates as there is no annual roll up or compounding effect. As a consequence, homeowners know where they are - and will be - from the start.
It is important to acknowledge that the past problems associated with equity release related to mortgage-based schemes such as home income plans and shared appreciation mortgages. Furthermore, the equity release sector has also recently been unfairly tainted by the adverse publicity concerning sale and rent schemes which have more in common with the buy to let sector. These schemes are certainly not bona fide regulated home reversion plans.
How do you engage with advisers to ensure they know how this product works?
Home & Capital has established excellent links with a wide range of financial intermediaries over the years. The company is committed to delivering high standards of personal service and value. In this regard, every case is treated as special. We can be flexible in our approach towards putting in place a home reversion plan that meets the specific needs of the adviser and his client.
Financial intermediaries are serviced by a telephone-based enquiry centre which is backed up by a team of in-house qualified advisers who are equipped to provide support at the level required by the intermediary. Much of Home & Capital's business originates from advisers who have not passed the necessary exams or whose firms do not hold the necessary regulatory permission to advise upon home reversion plans. Home & Capital has the resources and permissions to process these cases on behalf of the intermediary firm. Next year, awareness will be bolstered by the recruitment of a dedicated sales manager to focus upon the intermediary market.
What are the main challenges you faced when introducing this product into the marketplace and how have you met them?
The main challenges have always related to getting widespread acceptance among advisers and other interested parties that it is appropriate for their clients to use the home as a retirement planning tool. In a recent survey conducted by Home & Capital, only 16% of people ruled out equity release as a means of improving their retirement lifestyle. The Alliance Trust has recently reported that over 40% of homeowners plan to use their property to fund their retirement. If these statistics are accurate, it would seem that intermediaries are out of step with their clients and it does help to explain why so many providers have recruited direct sales forces.
There can be little doubt that financial intermediaries are still reluctant to include equity release options in the retirement portfolios that they put forward to their clients. A major factor is of course the negative and unjustified media image which still prevails despite the recent progress which has been made in this area.
The comprehensive regulatory umbrella which has been introduced this year will in time assist in boosting confidence in the sector as a whole.
Where can advisers go to get more information?
Advisers can get information on the Home & Capital plans by requesting brochures and KFIs from the Enquiry Centre on 0845 6013260. Furthermore, the Company website www.homecapital.co.uk is regularly being updated with the latest developments on the products supplemented by emailers to the intermediary database.
Home & Capital is now on the Exchange but advisers are encouraged also to contact us on an individual basis to ensure that the particular circumstances in each case can best be catered for within the home reversion plan.
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Former PFS president
Last commission convened in 2002