Comments by Lynda Blackwell, head of mortgages at the FCA, suggesting older people should consider downsizing, unsurprisingly provoked a media storm.
The 55-year-old, according to a national newspaper, lives with her partner in a five-bedroom, £1.28m home.
As a 56-year-old who also lives in a five-bedroom home I feel rather strongly that it is up to individuals to decide where they live without some regulator preaching.
Her real point appears to have been that there may not be enough enticing housing for older people.
My suspicion is that in some cases it may be the financial industry rather than the building industry that is preventing older people from trading down.
An elderly lady contacted me recently about the size of her equity release debt.
This had grown from an initial £27,000 borrowed by her and her late husband in 2001 to £84,842.
The interest rate is 8.25 per cent. Getting out of it to remortgage, or selling up so she could move in with relatives would trigger an early redemption charge of £19,182.
Equity release is now a mature market with £1.4bn withdrawn last year, according to the Equity Release Council.
Yet products fail to reflect this. Perhaps it is time for a rethink.
The first and most obvious problem is enormous redemption penalties.
These can be a huge deterrent to anyone considering trading down to a smaller property, especially if they would like to become mortgage-free.
Is it really necessary to have redemption penalties on a mortgage that has been running for 10 years?
Is it really necessary to have redemption penalties on a mortgage that has been running for 10 years?Equity release has also failed to keep up with other implications of increasing lifespans.
Many work on the assumption that either both partners will enter care at the same time, the survivor will enter care when widowed or both will stay in the same home until they die.
What they do not take into account is that as people become frailer they may wish to move to be closer to family. Or one partner may need to go into care and the other may wish to trade down.
It should be possible to cater for these circumstances without triggering redemption penalties.
Another concern is the level of interest rates. These have come down, but the loans can still be twice the level of a five-year fix and two-thirds higher than a 10-year one.
Drawdown products have mitigated the effects of compounding, but rates are still too high.
Equity release borrowers tend to take less than 30 per cent of their property’s value (those using drawdown take less than 20 per cent), according to the Equity Release Market Report. Borrowers put their whole property up as security. Younger borrowers may offer only a 10 per cent deposit.
It is time for change. If we are to see a looser housing market then older people should be able to trade down if they wish to without impediment.
And this means equity release lenders must release the chains that bind the elderly.
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Never knowingly transparent
A debate over the charging structure of St James’s Place was sparked by another national newspaper a couple of weeks back, with readers complaining that charges were not transparent.
In response, SJP claimed that clients were only interested in one overall charge, saying: “If you go to John Lewis and buy a television or a computer, you don’t ask for the breakdown of the costs to find out what the margin is that John Lewis makes versus the manufacturing costs and everything else.”
I’ve seen this style of argument before, and I don’t accept it.
I think a fairer analogy is someone visiting their local garage. Imagine the kerfuffle if an SJP manager were told that some work had been completed on their car but they weren’t going to be given a price breakdown.
However, they should be happy because the service was excellent and they’d even cleaned the car.
The reason I offer this analogy is simple: using an investment adviser should be a long-term relationship not a one-off transaction like buying a television.
And if SJP persists in using John Lewis as a comparison for its business it might want to adopt its commitment to customers: “Never knowingly undersold.”
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Beware charges and taxes
I received a letter from a reader who was upset at the return on his investment.
He bought units in Fidelity European in 1990. Using Morningstar data, he estimated his investment should be worth just over £100,000. Instead it is worth £51,000.
The difference, he is told, is down to charges and tax.
The original investment was made through Merchant Investors. Enough said.
