Regulation is largely agreed to have brought “credibility, security and peace of mind” to the equity release market.
It has allowed industry to develop new products, all based around the ‘no negative equity guarantee’ - one of the main manifestations of regulation, according to Andy Wilson, director of Andy Wilson Financial Services and a specialist equity release adviser.
He says today’s equity release market is almost unrecognisable when compared to its ‘fledgling’ days in the 1980s.
Mr Wilson explains equity release is now a mainstream product largely because of regulation: “Potential applicants who may remember the difficulties in the market in the 80’s will be reassured at how developed the products have become.
“Regulation has been a positive move, and seeks to ensure clients are properly and thoroughly advised, guided and supported.
Greater consumer confidence in equity release products benefits the sector hugely, and contributes to its growth. Nigel Waterson“Regulation means transparency is at the heart of all equity release advice, ensuring clients understand what they are taking up, how it will help them and what they can expect for their future.”
SHIP
When they were first became popular in the 1980s equity release products, or home income plans and they were then known, were not regulated.
The adoption of self regulation known as SHIP, or safe home income plans, standards in the 1990s and subsequent changes in regulations and standards under the guidance of the Financial Conduct Authority (FCA) and The Equity Release Council (ERC) have made major differences to equity release, according to Aviva.
Roger Marsden, managing director of Aviva equity release, says one of the standout consequences of regulation is that equity release is always fully advised and, “combined with ER Council standards, regulation gives peace of mind".
Andrea Rozario, chief corporate officer at equity release specialist Bower Retirement agrees: “The impact of the code of conduct devised by SHIP cleaned up the market ensuring there are safeguards built into the products, and now the advice process, all of which has helped build consumer confidence.”
The introduction of regulation for lifetime mortgages in 2004 and later home reversions in 2007 further improved confidence, Ms Rozario adds.
Aviva cites regulation as helping drive product innovation which has resulted in the development of important features intended at providing essential safeguards for customers.
Examples of the features driven by regulation:
- No negative equity guarantees.
- Optional inheritance protection guarantees.
- Fixed interest rates.
- Voluntary partial repayment options.
- No mandatory repayments during the loan term.
Future regulation
Further regulation, has for the meantime, been ruled out, although the FCA has proposed the creation of a standalone qualification for advisers wanting to sell equity release products.
As things currently stand, equity release qualifications currently link to mortgages, which means they sometimes don't get the same focus, explains Joanna Fowler, head of product at Saga Money.
Largely light-touch regulation has meant the industry has been able to develop products, she says, which allow people to maximise the amount of equity they can release from their home.
According to Ms Fowler, the FCA’s decision to make exempt interest served products from the Mortgage Market Review (MMR) affordability checks had been welcomed by the equity release market.
She explains: “It will help more consumers unlock their housing wealth while protecting a larger amount of equity in their property.
“Giving customers the opportunity to make regular payments all the time they can afford to helps keep the amount that needs to be repaid down, but the option to switch to roll up should their circumstances change eases some of the pressure.
“For a lot of customers they cannot get a conventional mortgage when they reach a certain age due to the affordability checks and equity release gives them an alternative option.”
Dean Mirfin, technical director at Key Retirement, praises the ERC’s work to improve the industry’s reputation over the last 25 years, but says the products allowed under the current strict rules still had the potential to disenfranchising some interest-only borrowers.
However he believes product innovation would help overcome this.
Nigel Waterson, chairman of the ERC, comments: “One of the primary pieces of regulation from the FCA is its Mortgages: Conduct of Business (MCOB) rules, which outline standards in the mortgage market in terms of the sales and advice process.
“Furthermore, a majority of lenders as well as advisers are members of the ERC, and are thereby signed up to additional rules of principle.
"These include the no negative equity guarantee, which stipulates that borrowers will never owe more than the value of their home.”
Mr Waterson adds regulation means equity release customers enjoyed three levels of protection, encompassing a structured financial advice process, face-to-face legal advice and product safeguards.
According to Mr Waterson: “Appropriate regulations and standards ensure that the equity release market is able to provide an ever increasing number of borrowers with a source of income and safeguards.
"Greater consumer confidence in equity release products benefits the sector hugely, and contributes to its growth.”
