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IFAs warn FCA on equity release ‘blind spot’

IFAs warn FCA on equity release ‘blind spot’
 

Advisers have warned the Financial Conduct Authority that it needs to change how it regulates equity release products as concerns grow over the knock-on impact of the cost of living crisis.

In recent years, providers have noted an uptick in the use of equity release products as a way to help younger generations get on the housing ladder, or to subsidise retirement income, according to David Forsdyke, equity release expert at Knight Frank.

After a drop during the pandemic, Equity Release Council figures show the number of new plans agreed in the second quarter of this year rose 26 per cent year-on-year.

The 12,485 new plans agreed in the three months to June this year was just shy of the record of 12,891 set in the fourth quarter in 2018.

There was also an annual shortfall in pensioners’ income in the UK of £48bn in 2020 and 2021, according to figures from the Lang Cat, PLSA and ONS. 

Combined with rising inflation, predicted to hit 13 per cent later this year, experts reckon consumers will increasingly look to equity release to make up the gap.

While the products themselves are not the main issue, it is the quality of the advice given alongside their purchase which is worrying the industry.

Mark Dampier, an industry commentator, said consumers need “loads” of advice when entering into equity release.

“Too many people take [equity release products] out when they are too young, and build a conservatory or give the money away,” he said.

“If they then need to move house or pay care fees in the future, they are not able.

“In the past 30 years I’ve seen some crap advice."

Equity release allows consumers to use their home as a security for a lifetime mortgage or home reversion plan.

Two years ago, the FCA sounded alarm bells over unsuitable equity release advice, with a review finding that advisers were not always able to show their recommendations were suitable for clients, and the reasons behind consumers looking at the products were not always challenged appropriately.

The regulator then warned the industry again earlier this year, saying it is going to look again at the market to make sure it is working in the best interests of consumers.

The equity release industry has had to work to improve its reputation, which took a knock in the 1980s and 1990s amid a number of scandals, leaving people with large amounts of debt.

Regulator issues

In a report released by the Lang Cat in June, Tom McPhail, the consultancy’s director of public affairs, said although regulation which focuses on the quality of the advice given is important, more focus needs to be put on the advice not given. 

He said the FCA should regulate equity release separately to the mortgage market.

“Politicians and the FCA have a massive blind spot when it comes to making best use of housing wealth,” he said.