Equity Release Council must up its game

Or, to be a little blunter, will the equity release industry ever shake off its image as a member of the dark side of financial services? Always to remain in the same bad-boy camp as the big casino banks.

An industry that some people – leading financial experts, well-known consumer champions – believe exploits cash-poor pensioners living in homes they do not want to desert or downsize from. One that cries: “Give us your house and we’ll give you tuppence ha’penny in return.”

I have been waiting 25 long years for the dark clouds to be blown away and replaced by a state of equity-release nirvana. But they never quite disappear. The sun never quite breaks through. The dark side always triumphs.

Despite the formation of Ship (Safe Home Income Plans), the splendid ground-breaking work of home income specialists such as Cecil Hinton at Hinton & Wild (a company no more) in the 1990s, and the creation of the Equity Release Council, the equity release industry still remains prone to criticism. And it does not deal with it very well. One step forward, two steps back.

Take the acres of press coverage recently given to former tennis star Andrew Castle’s spat over the early redemption penalties his parents-in-law, Eva and Anders Hilding, were required to pay on an equity release plan they took out on a home in Bridport, Dorset in 2009.

Wishing to move nearer to Mr Castle’s wife, Sofia, they were hit with £17,500 of early redemption penalties on an original loan of £70,000 plus interest charges compounding at six per cent a year.

As Mr Castle told my colleague Donna Ferguson in The Mail on Sunday – she broke the story in June 2015 – “they paid £47,000 for the privilege of borrowing £70,000 for five years. That is a rip-off.”

For good measure, he said lifetime mortgages were “one of the biggest scandals in this country” and that “the elderly and the vulnerable are being taken advantage of”.

Despite the fact that the complaint Mr Castle brought before Fos was not upheld because all charges had been disclosed in the original documents that his parents-in-law had received, Mr Castle’s views were widely followed up – and sympathetically reported.

For example, writing in the Sun newspaper, its former editor Kelvin MacKenzie saluted him, describing equity release schemes as a “racket” and imploring Mr Castle to become a “champion for those who can’t defend themselves”.

The equity release industry’s response was somewhat meek, with Dean Mirfin, group director of broker Key Retirement, saying that the case should not be held up as the norm.

Nigel Waterson, chairman of the Equity Release Council, talked about “misleading” reporting without spelling out in black and white what exactly had been misreported. He also expressed extreme concern over the “needless anxiety” that had been created by the Mr Castle episode.

Game, set and match to Mr Castle.

So, will equity release always be viewed with suspicion? Probably yes, is the answer, because of its target market. But that does not mean the industry is without merit. Far from it.

Only recently, Age Partnership, a big player in equity release, released data showing that the property wealth of the over-55s in England is likely to double, to almost £2.5trn by 2035. At that time, more than 21m people will be aged 55 or over.

Simon Chalk, the font of all equity release knowledge at the company, is adamant that this vast housing wealth will play a key role in helping many people fund the long journey they must make from full-time to part-time work and eventual retirement. Pensions – and new pension freedoms – will not be enough.

Some of this equity will be released as people downsize. Others – some willingly, others a little hesitantly – will turn to equity release lifetime mortgages.

“Equity release isn’t for everyone,” Mr Chalk said, “but the explosion we are seeing in the housing wealth of the over-55s means more people will view lifetime mortgages as a compelling solution to boosting their retirement income.”

Last week, an independent report was published on future consumer demand for retirement borrowing. Written by leading academics from the universities of Birmingham and Essex, the report said greater flexibility and innovation in equity release products was needed. It suggested the resurrection of reversion plans – an idea immediately panned by Money Mail editor James Coney – and the possible removal of the ‘no negative equity’ guarantee .

The report is along the right lines. The equity release market needs to keep remoulding itself.

It requires more ‘challenger’ players to come into the market – the likes of new provider Legal & General. More competition will result in consumers getting better value, interest charges being driven down and other charges – early redemption penalties for example – being chipped away at.

The market needs more innovation such as drawdown, which I think has transformed the financial mechanics of equity release.

And it is screaming out for more IFAs to establish themselves as equity release specialists and challenge established big brokers Age Partnership, Bower Retirement Services and Key Retirement.

Finally, the Equity Release Council needs to up its game. It is too defensive by far. It has to start telling the world that equity release has a big role to play in a country where more people are living longer – and where vast swathes of wealth are tied up in property.

The Equity Release Council needs to up its game. It is too defensive by far

It has to shout louder about welcome industry innovations – drawdown – while constantly insisting lenders provide better value for money.

Over to you Mr Waterson. New balls please.

Jeff Prestridge is personal finance editor at the Mail on Sunday