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.
In the past 30 years I’ve seen some crap adviceMark Dampier, commentatorWhile 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.
It is time for policymakers to recognise the huge potential in this sectorTom McPhail, Lang CatThe industry also needs tougher regulation of retirement advice, he said, including more training and the requirement to disclose whether housing wealth is being considered when giving retirement income advice.
“The FCA is not held accountable for the good outcomes its regulation fails to encourage, only for the bad outcomes it fails to prevent,” he said.
Managing director at Wessex Investment Management, Kevin Bailey, said the FCA has been “reactive to too much” that has happened in financial services in recent years.
“We see in the media how easy it is for consumers to apply for equity release…and appropriateness. Too many are accessing equity in their property without fully understanding the implications.
“I and many others believe that equity release has been and continues to be a high risk product that far too many are walking into without fully investigating all the options,” Bailey added.
Former adviser Harry Katz said the “biggest rip off in financial services” will - and is - proven again through equity release.
“How this squares with the new rules on consumer duty only the FCA will know,” he said.
The consumer duty, which will be implemented in July next year, is a new regulation which outlines the regulator’s expectations on how companies treat clients.
Groups will be required to make it as easy for clients to switch or cancel products in line with the ease at which they can be taken out, and customer support will need to be helpful and accessible, alongside a number of other requirements.
McPhail warned that the combination of the cost of living crisis and declining guaranteed incomes will serve to exacerbate the rise in use of these products, which could prove hugely beneficial if regulated appropriately.
“It is time for policymakers to recognise the huge potential in this sector to help the cost of living crisis and the levelling up agenda.”
A spokesperson for the FCA said an increasing number of consumers are approaching retirement either owning their homes outright or with a mortgage.
"The lifetime mortgage market caters to those who want to use the value in their home to meet their later life needs.
"Given the significance of these decisions for consumers we are considering the work we need to do to ensure that the market is working well. We will consider the recommendations in this review”.
sally.hickey@ft.com, ruby.hinchliffe@ft.com
