Equity release professionals have moved to quash adviser accusations some products are potentially being mis-sold, pointing to strides forward in professional standards.
The latest figures from trade body the Equity Release Council showed quarterly lending in the sector surged past £500m for the first time since it began keeping records.
But as the industry grows, advisers have warned the complexity of plans means some older borrowers - and their next of kin - may be surprised by outcomes.
Michelle Lawson, director at mortgage brokers Lawson Financial, said she is worried equity release may be the next product to be pursued by claims management companies, despite measures to improve the sector’s image in the last 25 years.
“Sometimes older people don’t know what they’re doing, so when they die the kids then complain as they are left with no inheritance,” she commented, adding that she tends to refer the few requests which do come in.
Oliver Marley, head of mortgage research at Independent James, said while he doesn’t advise on equity release himself, the same stories filter through from those that do.
“Some of these financial products can be innovative and still moving through development – making them quite hard to understand – most clients do not have a particularly strong financial background and are not aware of the benefits/drawbacks.
“When they first had a mortgage, there were few financial checks and probably didn’t even receive an illustration, so now they are bombarded with heaps of paperwork and so will be relying solely on the adviser’s word.”
Dale Jannels, managing director at All Types of Mortgages, said he recently passed his equity release qualifications to participate in an industry he said will keep growing in the next five years, “especially as so many customers are reaching mortgage maturity without any way of repaying their interest only loan, apart from selling and downsizing”.
However, he said many intermediaries are cautious in offering equity release options to those below age 75-80.
“People are living longer and it can work out to be expensive compared to smaller building societies offering low rate mortgage deals with no maximum age, which might be more appropriate”.
The Financial Ombudsman Service pointed out equity release is not a specific area it has figures for, but a spokeswoman said the number of cases related to such products are “relatively low”, estimating ombudsmen only deal with around 100-200 a year.
In an explanatory note on the Fos website, senior ombudsman Kate Hennessy said people are often advised to discuss their plans with their family, but they may choose not to – meaning it comes as a shock to their loved ones that they owe thousands of pounds.
“In fact, two in three complaints we get about equity release come from relatives of people who’ve died or gone into care,” she said, adding: “In general, we find most people receive suitable advice about releasing equity.”
ERC chairman Nigel Waterson said any appraisal of today’s sector should start with the fact it has been remodelled since the 1980s to be a safe and reliable for consumers.
“The council and its members have worked for the last 25 years, since the first industry standards were introduced, to ensure customers are fully informed, supported in their choices and can rely on products which provide secure finance in later life with built-in guarantees and protections,” he stated.
“These product-based standards are simple to explain and create certainty about the protections offered, meaning customers are not subject to the uncertainties around changing interest rates and negative equity associated with now-defunct products,” he said.
Mr Waterson also noted equity release products can only be arranged by qualified and regulated advisers.
“In addition to their regulatory obligations, our members commit to taking customers through a detailed advice process, which includes fully discussing the alternatives, such as downsizing, both now and in the future.
“Customers are also advised to discuss their choices with their family or other beneficiaries of their will before committing.”
As the market grows, a lack of suitably qualified advisers has been cited by those within the industry as a potential stumbling block.
During the second quarter of 2016, lender More 2 Life broke its own total lending records, but managing director Dave Harris said to support further growth, more adviser numbers were needed, backing similar calls from equity release adviser Bower Retirement Services.
However advisers remain sceptical about equity release products.
In FTAdviser’s recent guide to equity release, deVere UK’s head of advice Mitch Hopkinson commented: “Some advisers have shied away from this as it is a relatively immature market place and is considered still by many to be ‘risky’.”
Andrea Rozario, chief corporate officer at Bower and a former director general of the ERC, said many advisers outside the equity release industry have a “somewhat superficial” understanding which has been swayed by past headlines.
“Often the advisers want the easiest route, rather than taking the time to develop a deep understanding and knowledge, which in turn makes it easier for the client as its simply a case of really understanding the clients situation/needs and then matching the right product; not simply looking for the cheapest deal.”
