Changes to the annuity market have set back the equity release sector, but could lead to greater innovation in equity release, this month’s mortgage spotlight reveals.
The changes set out in the Budget this year are the biggest challenge to hit the equity release sector in the last few years, which has led to a slowing down of the market as providers focus on how to respond to the new regime.
While the changes have clearly posed a challenge to equity release, it could push forward innovation that otherwise could have taken years to happen, Laverne Hadaway said.
Tom Moloney, Financial Advice Manager at debt management charity StepChange, welcomed the idea of the sector widening its funding away from just annuities to more deposit-based funding from banks and building societies. He predicted a move away from traditional roll-up lifetime mortgages towards a retirement mortgage proposition.
Mr Moloney believes the next big trend in the sector will be plans that allow clients to manage and service the interest, making them look and feel more affordable and more like a residential mortgage.
“All the conversations we’re having with providers now around product development and innovation are focused on how to introduce plans that allow people to service the interest,” Mr Moloney said.
Clients of StepChange will receive advice about equity release as well as a more joined up approach with a directly authorised residential mortgage and equity release advice service. Where neither remortgaging nor equity release are options, clients will be advised on the pros and cons of downsizing, thus ensuring that clients know sooner rather than later so that they can take ownership of their situation rather than waiting until the lender resorts to litigation.
StepChange seeks to educate clients about not necessarily taking all their equity in one go, but instead encouraging them to be frugal with it and to take only what they need when they need it. It also provides comparisons to enable clients to compare the cost of different options.
As Mr Moloney pointed out, most people can only take each individual pound out of their house once. The aim is to make sure that when they take it, they make the most of it and maintain the future flexibility of the plan.
