The government has shown support for older people being signposted to equity release as a home financing option, in what has been described as a display of confidence in the sector.
In its response to a report from the Housing, Communities and Local Government select committee on its inquiry into housing for older people, published yesterday (27 September), the government said the new single financial guidance body should include information on equity release alongside other options.
It said: "The government agrees with the committee’s recommendation that the single financial guidance body should signpost older people to mortgage brokers, banks and building societies who can offer advice on mortgages and equity release, shared ownership and shared equity, and on re-investing the proceeds of sales."
David Burrowes, chairman of the Equity Release Council, said the recommendation amounted to a vote of confidence from the government in the role equity release can play in financial planning for older people.
He said: "The Council has long championed the view that the option to unlock some of their housing wealth should be on every older homeowner’s checklist to consider, and the wide range of equity release products today can suit a similarly wide range of personal needs."
The new single financial guidance body will see the merger of the Money Advice Service, the Pensions Advisory Service and Pension Wise into a single entity later this year and will be chaired by former Financial Services Authority chief executive Hector Sants.
The Housing, Communities and Local Government select committee recommended that where an older person is rejected for a mortgage or re-mortgage, the lender should "routinely refer them to another lender, a mortgage broker or, once established, the single financial guidance body".
In its response, the government said the Financial Guidance and Claims Act 2018 required the FCA to make rules signposting to the body’s guidance services and that these rules may mean high-street lenders will need to signpost older people to the guidance body.
Peter Wright, director at Colchester-based Plan Money, said the equity release market has developed since the regulator loosened its rules around later life lending.
In March the Financial Conduct Authority removed a regulatory barrier to allow ‘retirement interest-only mortgages’ for older consumers, in which the loan would only be repaid on a specified life event such as the customer’s death or move into residential care. The products previously fell under equity release standards, meaning they required specialist advice.
He said: "The equity release market has gained much confidence due to the transparency and flexibility that has come into the products which is also helping to resolve a previously ingrained problem.
"The market has developed massively over the past decade with the introduction of mortgage providers expanding their ‘into retirement’ lending options and, as such, equity release has broadly become cheaper and more flexible.
"Products now offer positive features such as allowing consumers to cover interest charges in order to remove or reduce the compound cost of interest.
"Obviously the demand from the consumer is there, either from the need to repay historically poorly structured mortgages or to allow the consumer the ability to maintain a higher standard of living."
But Steve Paterson, director at Teesside Money, said equity release was still complex and sound advice on the product was vital.
He said: "The equity release market has taken off in the past year and at some point it has to be addressed as a viable option. It can be particularly useful for people who are coming to the end of interest-only mortgages, are approaching retirement and don’t want to leave their homes, but their high street lenders want the loan repaid.
"It is a misunderstood product at times, but can be fantastic for the right people. However, it is complex and it needs sound advice."
Mr Burrowes added consumers should benefit from taking a more rounded approach to their retirement planning and considering property assets alongside their savings and pensions.
He said: "It is important this recommendation is implemented in a way that recognises the need for specialist equity release advice and promotes joined-up thinking about the full range of options available and how people’s needs may evolve at different stages of life."
