The mainstream mortgage industry has made an utter hash of interest-only loans, creating uncertainty and worry for hundreds of thousands of borrowers.
As banks continue to duck these problems that are solely of their own making, the equity release industry has cast itself in the role of knights in shining armour coming to the rescue of beleaguered borrowers.
Perhaps, though, a more accurate view might be that they have sighted a business opportunity which, if handled correctly, could provide a palatable solution for those who might otherwise be in danger of losing their home.
Here is just one example of how poorly mainstream lenders are handling this issue. A 68-year-old man has an £80,000 Santander mortgage on his £100,000 property. He had used his savings to cover funeral expenses for his parents and both brothers. His pensions from the Royal Navy, Royal Mail and the state total £19,000 per year.
They have sighted a business opportunity which, if handled correctly, could provide a palatable solution for those who might otherwise be in danger of losing their home.The man requested advice from Santander which, he says, simply told him he had to repay by the time he was 75. Other lenders turned him away.
It transpired that he was paying the standard variable rate of 4.74 per cent, which was costing him £320 per month. So why hadn’t Santander offered a cheaper fixed rate that would allow him more capacity to overpay?
After I pointed this out, Santander offered a five-year fix at 3.49 per cent with a monthly payment of £235 so he will be able to overpay more. Surely it should be routine to offer borrowers in this situation the cheapest possible deal to allow overpayment.
It is this sort of borrower who has the capacity to repay, but has insufficient equity, that the equity release industry will need to pick up if it is to have a significant impact on the misery caused by interest-only mortgages.
There are expected to be 40,000 interest-only mortgages maturing every year until 2031, and a significant proportion of these will still have a loan outstanding.
However, the equity release industry is adamant that it cannot produce a solution and continue to offer the guarantees tied up with current equity release products. Key among these is the no negative equity guarantee.
Equity release providers argue – with some justification – that they are being expected to offer guarantees not given by mainstream lenders. They have a point.
The no negative equity guarantee is vital to those seeking to cash in on the value of their home. But to those with interest-only loans, remaining in their home is the prime concern and guarantees may have to be adjusted to reflect this.
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Nine out of ten UK equity funds underperform in 2016
Nine out of ten UK equity funds underperformed their benchmark last year, according to the S&P Indices versus Active Funds report showing that.
I suspect their performance was not helped if the anti-Brexit feeling in the City influenced stockpicking. But this was not really a one-year blip. The crushing statistic is that 74.2 per cent under-performed over 10 years.
Worse was emerging markets – the ideal sector for stockpickers – yes? Well, no, actually. They all under-performed over 10 years. How is that even possible?
Of course, we are usually faced with the argument that active funds do better in falling markets. This assertion in itself is debatable. But I have always seen this as a vacuous and negative argument.
Surely the whole reason we invest is to make money over the long term. Therefore we want the best possible returns when markets are rising.
If our prime motivation is to protect our money when markets are falling, then we might as well put it in the building society.
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Fashion tips for the sartorially savvy
Finally, from PromotionalCodes.org.uk some tips on how to save money on your wardrobe – just what the well-dressed financial adviser needs as they step into spring.
Top tips include:
* Don’t conform to trends.
* Hit charity shops – there are plenty of them taking over premises as higher business rate force out other shops.
* Count to three before you buy – though, beware as it may annoy the person standing in the queue behind you. Also do not do it if your PIN is 1234.
* Do not be afraid to DIY. In those idle minutes between client meetings, why not do a bit of knitting or darning? Not only will you save pounds, you could convince clients you are on the poverty line, so they will peruse your fees with a gentler eye.
Tony Hazell writes for the Daily Mail's Money Mail section
