Jayne Almond takes a look at what needs to be done to develop consumer confidence in equity release
Equity release has a very mixed reputation. A number of mis-selling scandals based on equity release products sold in the 80s and 90s have damaged the industry in the eyes of consumers.
The reality today is however very different. The equity release products available on the market, lifetime mortgages and reversion products are regulated by the FSA. This regulation gives customers considerable protection.
Providers are required to provide compliant product literature and product design has changed to provide many safe guards for customers. No negative equity guarantees are standard and all members of SHIP insist that customers take independent legal advice.
Brokers are now required to be authorised to sell equity release products and guidelines have been developed to ensure a compliant sales process. Many of the specialist brokers adopt a policy of 100% compliance checking and follow the guidelines prescribed by the various industry bodies.
Pricing has also reduced to the point where equity release loans compare favourably with many other options.
Given this situation, why do we still see concerns expressed about equity release?
The problem is that many people still remember the problems of the past and some populist commentators have a habit of reminding customers of previous mis-selling scandals (witness the recent TV programme with Trevor MacDonald).
What is needed now is for providers and brokers to get on the front foot and explain to commentators, influencers and end customers that the industry has changed and that the new products and sales processes provide customers with good value for money products.
This needs to be backed up with high quality advice and a commitment to continue to improve industry standards. Excellent work is being done by various industry bodies such as the CML, SHIP and intermediary associations. While this work is starting to feed its way into the specialist trade press, there is still limited coverage at the consumer press level. More needs to be done to get the positive messages across to the public.
With this in mind, it is encouraging to see the emergence of consumer champions such as broadcaster, Esther Rantzen starting to promote the positive messages about equity release.
Other commentators have also recognised both the improvements which have been made in the market and the fact that equity release is an attractive option to meet many customer needs. The Joseph Rowntree Foundation for example published a report which was supportive of equity release as an answer to older homeowners with inadequate pension provision. Saga, Age Concern and Help the Aged have thrown their weight behind the industry. The government also is moving to support the use of equity release as witnessed by the recent Commons statement from Yvette Cooper, minister of state covering housing and planning issues in the Office of the Deputy Prime Minister. Providers, IFAs and industry associations should seek to enlist these organisations, support and use it to promote greater consumer confidence.
A further barrier in building consumer confidence is the difficulty many customers have in identifying appropriately qualified IFAs. There are a number of initiatives being developed by various intermediary trade bodies to address this issue. Publication and promotion of a list of these qualified specialists would help to overcome this barrier.
Above all though, there is still a shortage of intermediaries who advise on equity release products. As more intermediaries and other organisations such as banks and building societies enter the market, so customer confidence will grow. Existing providers and intermediaries have, somewhat strangely, a vested interest in encouraging more competitors to enter the market, as this will increase consumer confidence and hence grow the overall market.
Equity release is not right for all homeowners. However, there are a significant number of 55 year old + homeowners for whom it is an attractive alternative. At the moment limited distribution and lack of consumer confidence, fuelled by scare-mongering commentators, are preventing customers from considering equity release as a viable option. Many homeowners instead are saddled with significant monthly mortgage payments and expensive credit card and store card debt.
Despite improved risk appetite
FOS award limit increase
Relates to 136 million transaction reports
Ceremony will take place 13 November