OpinionOct 31 2013

Iniquity release?

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
comment-speech

As a journalist I have learned to trust my instincts when something just doesn’t feel right. So what is it about equity release that makes the hair on the back of my neck stand up?

When I started at FTAdviser two years ago, it was my first experience with financial journalism. I was learning a lot during that time, and a lot of it was going straight over my head. However, I hadn’t been in my post more than a couple of months before I started getting calls and meeting requests from companies pushing their equity release businesses.

These folk went out of their way to convince me that equity release was wrongfully mistrusted due to historical troubles, and was springing back as a legitimate source of retirement income or to fund long-term care for homeowners who might otherwise struggle.

They were - and still are - very eager to get equity release into the press.

Now, there are certainly those for whom equity release could be a suitable option. One adviser I spoke to said someone approaching, or at retirement, maybe without children or other funding for care or retirement income, might well benefit from such an arrangement.

The point about having no children is two-fold: on one hand it means the children won’t be able to support their parents’ dotage, but it also means if the client chooses to spring for equity release, they won’t be eroding their children’s inheritance.

Generally, the message I’m hearing from advisers is that equity release is a very niche product, that would be suitable for only a select few special cases.

But then you see news like this from the Equity Release Council, saying the sales of such products have hit their highest quarterly peak in five years, at an eye-watering total value of £284m.

This apparent contradiction forms the basis of my instinct on the matter, which is this: the intense level of promotion being given to equity release is not in line with the actual demand that exists for it in the market.

You might argue that high supply and low demand leads to competition, which can only be good for customers. Competition is a good thing, but it can also prompt companies to search for business in new, unexplored and perhaps inappropriate territories.

Take the worrying findings of Which? undercover research for example.

Now let’s turn to the ad Key Retirement Solutions ran in the Telegraph last month.

The - frankly shocking - ad pitched equity release like this: “Instead of jingle bells, many over-55s will be hearing alarm bells as they consider paying for this year’s presents with next year’s money... If you’re a homeowner aged over 55 and you can’t afford to finance this year’s festivities, there may be another way.”

It went on to say Key Retirement Solutions’ equity release service could help people enjoy Christmas and new year without worrying about credit card bills.

“Instead of shopping for bargains... you could be splashing out on all the best gifts for your family and friends.”

Let’s not beat around the bush here. This is exactly the same line you hear from pension liberation companies and payday lenders. Regardless of how responsibly KRS vets prospective customers, this is a seedy advertising angle.

Remember, the average equity release agreement is for around £15,000. Who spends anywhere near that on Christmas presents? And who would ever, in a million years, want their parents to fritter away their inheritance on frivolity?

“Wow dad, Audis for all of us? You really outdid yourself this time. How on earth did you afford this?”

“Oh, just a little something I found kicking around. Don’t worry about it.”

Obviously payday lenders and pension liberation companies are generally much more destructive for consumers.

But despite KRS’s comments that they very carefully evaluate each client on a case-by-case basis, I have to wonder: with such an aggressive and suggestive marketing campaign, how does the conversation go when it comes down to two people sitting in a room together, one sales person and one elderly person hoping misguidedly to ‘spoil their grandchildren’?

Even if KRS is as responsible as it claims to be, it’s an unhealthy precedent to set.