Sparks fly as industry squares up to equity release critics

In a landmark meeting, Safe Home Income Plans and Which? came face to face for the first time, to battle out their polarised views of the equity release market, reports Mortgage Solutions (19/2/2007).

In the heated debate, hosted by Mortgage Solutions, the two groups clashed on the issue of standards of advice, despite both being united in a call for more Government involvement in the sector.

Teresa Fritz, principal researcher at Which?, said equity release represented a "last resort", and accused marketeers of promoting the sector as a "luxury product". She explained: "The products themselves are complicated, inflexible, and can be very expensive. The general risk element of equity release is not widely understood."

However, Jon King, chair­­man of SHIP, hit back, claiming safeguards in the sector were higher than in any other, adding that his members insist on advised sales, with each client required to have access to a separate lawyer as well as an adviser. He pointed out that, from 1 August this year, the body will not accept business from intermediaries who have not passed a specialist examination in lifetime mortgages.

Independent consultant, Mick McAteer, added to the debate, asserting that the standards and quality of advice on equity release were generally poor, and there had been a "history and legacy of market failure." He continued: "What saddens me is that there is a role for equity release, but the market is not delivering".

The IFA view was represented by Michael Philps, business manager at Hinton & Wild, who said most clients took a number of months, if not years, to undertake their research, before pursuing the equity release option.

The debate also highlighted the breadth of reasons why clients opt for equity release, from those surviving on a state pension through to those wanting to release capital for "luxury" pur­­chases, such as home imp­­rovements or holidays.

Fritz accused lenders of offering a "small range of products for a very wide range of consumers." She added that the two groups should be offered different products, and suggested the industry favours the more "financially sophisticated and more financially aware" client.

However, all agreed that further discussions were needed to take the sector forward. King concluded: "We feel as an industry that we want to take the next step to educate people more about the plans – where they are competitive – to empower the consumer."

FSA warns over lifetime mortgage advice

The Financial Services Authority has written to firms urging them to ensure their lifetime mortgage advice meets required standards ahead of another market review in late 2007, reports IFAonline.

The letter follows mystery shopping and thematic reviews in 2005 and 2006, which found cases of “unacceptable” advice standards, particularly in firms which transacted low volumes of lifetime mortgage business.

The FSA says lifetime mortgages must be fairly sold to customers who have a clear appreciation of the risks and benefits associated with the product.

It states: “We expect this letter and actions taken by senior management will lead to an improvement in the quality of advice provided. We will review the situation at the end of 2007 and consider whether any further regulatory action is appropriate.”

Key issues which firms may wish to consider include:

• Are advisers putting clients in the position of fully appreciating all the implications of entering into a lifetime mortgage?
• The impact a lifetime mortgage may have on a client’s entitlement to means-tested benefits;
• Where the client is releasing equity for home improvements, has consideration been given to the availability of local authority or other grants/loans?
• What impact will the lifetime mortgage have on the client’s tax position?
• Is the size of any proposed ‘rainy day’ fund reasonable for the client’s circumstances and does the client appreciate the financial implications and risks of borrowing money to invest and/or place on deposit?

The FSA adds: “There is no place in this market for firms that do not develop the necessary skills and do not implement appropriate systems to ensure that they give suitable advice. We expect firms to commit to delivering quality advice or refer the business to firms that have done so.”

Sixty Plus comment: This highlights the need for IFAs to focus on Equity Release properly if they are to advise in this market at all. With Home Reversion Plans become regulated from April, there will be increased scrutiny. IFAs wishing outsource their Equity Release enquiries can contact Sixty Plus at http://www.sixtyplusonline.co.uk/equity-release-advisers-1.htm

At Sixty Plus we have dedicated systems for fact finding, research and report writing to ensure our advice is robust.

SHIP report further equity release success

Reports out today show that there has been a healthy increase in the number of new equity release plans sold over the past year, coupled with a steady growth in drawdown business, reports Mortgage Introducer (27/1/07).

The annual research conducted by Safe Home Income Plans (SHIP) – a body that represents over 90 per cent of the equity release sector – shows that the total value of new business over the last quarter was £317.4 million, taking 2006’s total to £1,154.3 million.

Increases were also witnessed by both home reversion plans and lifetime mortgages in the final quarter of 2006, with the total number of new plans sold increasing by 19 per cent on the last quarter of 2005.

In addition to these promising figures, total home reversions business saw another impressive increase year on year, accounting for £73.5 million worth of new business in 2006 – up almost 35 per cent on 2005. However, lifetime mortgage business slowed over the last twelve months with only a 3 per cent rise on levels in 2005.

Drawdown mortgages were a large part of 2006’s success story and saw steady growth across the months. The final quarter of the year saw £89.9 million taken from a total of £202.9 million committed new business, which is a dramatic six and a half times increase in year on year committed new business.

SHIP’s chief executive, Jon King, commented: “It is clear that equity release is beginning to claim a significant place in the mortgage industry and its benefits are becoming more apparent to those at which it is targeted – the number of customers keen to use flexible drawdown mortgages is also highly encouraging.”

“If anything is to be learnt from the SHIP members’ survey, it is that the industry as a whole must work together to ensure good advice is readily available to these consumers, and that IFAs wishing to enter the market are equipped with the full range of knowledge and skill required.”