The booming equity release market could be heading for a capacity crunch as only about a quarter of advisers are authorised to give advice on the products.
It is estimated that about 8,000 advisers — out of 35,000 on the Financial Conduct Authority register — are qualified to advise clients on equity release despite sales in this sector increasing exponentially in the past few years.
Speaking at a lifetime mortgage conference this week (May 15), experts warned that unless the number of advisers able to give proper advice on equity release increased, such policies would fail to be adopted as a norm in the industry.
Abbie Knight, head of digital at Embark, said this was a worry as the "holistic advice process" should include every asset class, including directly held property.
She added: "Proper financial planning should involve, by default, a discussion on equity release. Unfortunately, in today’s regulatory framework, few advisers can advise on this asset class."
Paula Hughes, corporate business director at Key Retirement, said the equity release market needed good, well-informed advice as any bad advice given could perpetuate the bad reputation of the sector.
She said: "The last thing this market needs is a bad adviser experience. Good advice is key and we need bigger advice firms to help smaller brokers along the way to providing good, regulated equity release advice."
Last month, figures from the Equity Release Council said the market had its busiest start to any year on record this year and a poll from Canada Life in January showed an overwhelming majority of IFAs expected record lending in the equity release sector in 2019.
David Burrowes, chairman of the Equity Release Council, said the levels of consumer demand showed there was a need for equity release products to become part of the norm in financial services.
Speaking at the conference, Mr Burrowes said: "As a sector, we’ve seen massive growth. Last year was the seventh consecutive year the equity release market grew.
"About 82,000 customers took out an equity release product and the funds released totalled £3.94bn."
In particular, with 'baby boomers' looking to retire over the next decade, many without adequate funds to support their retirement, equity release is seen as one way to fill this 'savings gap'.
Research from Altus puts the savings gap for the baby boomer generation — those born between World War Two and the mid-1960s — at about £1.6trn.
This means this generation, who will be looking to retire over the next ten years or so, will need £1.6trn more in savings as a whole to sustain their standard of life and be financially viable throughout their retirement.
Baby boomers are the first generation where a considerable number hold their pension savings in defined contribution pots, whereas their parents typically enjoyed generous pensions from defined benefit schemes.
Speaking at the same conference, Jon Dean, head of retirement strategy at Altus, said he thought equity release could be the only way to close this gap.
He said: "About 95 per cent of baby boomers will not be able to sustain their standard of living in retirement.
"On top of this, 1.6m people will not achieve the minimum income standard, which is £9,154 a year outside of London according to the Joseph Rowntree Foundation."
But Mr Dean said figures from the ONS showed there was about £5trn of housing wealth in the UK and further research from Savills showed over 50-year olds held £2.8trn of this.
By releasing equity from these properties, the baby boomer generation would be able to cover the savings gap and help them remain financially stable through retirement.
imogen.tew@ft.com
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