Equity ReleaseMar 14 2018

Key points to consider when advising on equity release

  • To remind oneself of the principles of advising on equity release.
  • To understand that equity release might not be the immediate answer.
  • To learn about the range of features available on equity release products.
  • To remind oneself of the principles of advising on equity release.
  • To understand that equity release might not be the immediate answer.
  • To learn about the range of features available on equity release products.
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Key points to consider when advising on equity release

Many see a client claiming means-tested benefits such as pension credit or council tax benefit as a barrier to releasing equity.

This could not be further from reality if you know the rules. The regulator does not expect you to be a benefits specialist; however, some knowledge will pay dividends. An incorrect assumption is that releasing capital will, once savings are over a certain threshold, reduce their benefit entitlement.

This can in many cases be avoided legitimately through understanding the rules of ‘deprivation’. The rules allow for certain types of expenditure – for example, repaying debt and even buying a car.

Property repairs would also typically be exempt. When you consider that the top reasons for releasing equity are home and garden improvements and repaying some form of debt, it is easy to see that avoiding impacting benefits is very achievable. 

Key points 

• When advising on equity release, suitability is paramount.

• An adviser must consider alternative funds.

• A standard fact-find is unsuitable for equity release.

Drawdown is also an effective way of keeping capital below the allowed threshold. Ad hoc drawdown plans are only assessed for benefits purposes on funds physically taken by the client. Managing keeping funds below the threshold can be easily achieved.

There is one alternative that has to be central to the advice process and that is the option to do nothing. Going to great lengths to explore value irrespective of suitability of method – does the value of realising funds through any of the explored means outweigh the cost? 

Give value to borrowing

No one borrows, or should borrow, money for fun. I have lost count over the years of the number of clients who want to release equity but cannot give value to what this will do for them – for those people doing ‘nothing’ is usually always the best advice.

The first pitfall for anyone advising in this sector is to assume that everyone who enquires wants to do something and they want to do it now. Of all the people we see, less than half will do something.

Those who do not go ahead with equity release fall into a number of categories: the ‘do nothings’, the ‘better alternative’, the ‘do later’ and the list goes on. 

A standard fact-find is totally unsuitable to capture sufficient detail to conclude a suitable recommendation.
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