Chris Prior highlights the issues advisers need to discuss with clients considering equity release
One of the main obstacles hampering the equity release market from realising its true potential is the failure of advisers to recognise the full spectrum of situations where equity release may be useful.
Despite the evolution of the typical plan holder away from what may have been the norm five or ten years ago, not all advisers have kept pace with this change and still only associate cruises or conservatories as reasons for releasing equity.
In reality, the changing economic landscape has also altered the motivations for wanting to access funds tied up in property.
Servicing mortgages (including interest-only loans where the capital element hasn’t been addressed) and other debts has become an increasingly prominent part of why older homeowners are turning to equity release, as has gifting money to children and grandchildren to help realise their property aspirations.
If you factor in long-term care costs, dwindling State pensions and spiralling living costs and it’s no surprise some older homeowners are turning to equity release simply to maintain their standard of living.
Even in situations where advisers have identified equity release as a possible solution, we always recommend that they consider the full range of alternative options. Just as brokers should consider all mortgages on the market when advising borrowers, so should equity release advisers consider whether older homeowners may be better served by options such as utilising existing savings, downsizing, or asking family members for financial assistance.
Speaking of family members, we recommend that older homeowners considering equity release discuss the full range of possibilities with their loved ones too, as it is an important decision that has ramifications on others.
As well as considering alternatives, advisers should be asking their clients a range of questions not only to determine the suitability of equity release, but to establish whether a home reversion plan or a lifetime mortgage represents the best course of action.
Advisers can help to build a personal profile of their clients by asking them questions about their health, their life expectancy and whether they smoke.
Once they have ascertained these facts, they can discuss factors such as the client’s attitude towards house price inflation, whether guaranteeing inheritance is required, or if clients want to access one lump sum or regular drawdowns and even issues such as the plan set-up costs and who will manage the sale at the end of the plan.
These factors are all important and can help shape the advice process and the subsequent final outcome. While many of them may seem obvious to those inside the sector, they are not all immediately apparent to advisers who are new to equity release.
We are acutely aware of our responsibility as a provider to help raise awareness and education around equity release and, to this end, produce a range of guides and aids not only to help advisers and introducers spot where clients could benefit from equity release, but also how to structure their questions and build a profile once they’ve arrived at this stage.
This not only allows advisers to potentially reach a greater number of older homeowners, but also increases the likelihood of clients being satisfied with the plans once they have taken them out.
With the Mortgage Market Review ruling that all equity release customers must go through an advised sales process, it highlights the importance of older homeowners receiving the right counsel when it comes to such a significant life decision.
It is also as important that advisers are posing the right questions in the first place to effectively determine suitability.
Chris Prior is manager – sales and distribution at Bridgewater Equity Release
Has run Cautious Managed fund since 2011
What’s right – not what sells
Richards fires back at committee report
Available on Investcentre platform
Invested from 2006-2011