Equity release has come under the microscope recently with both positive and negative coverage.
The entry into the market by Prudential, announced this week and due to launch officially in early November, will see the sector boosted with good news. However negative publicity may have done irreparable damage in the eyes of the general public.
A recent investigation done by ITV’s Tonight with Trevor McDonald programme cast a shadow over equity release, as reports were detailed of customers taking out shared appreciation mortgages – only to lose their homes and forced to live frugally in order to pay loans off.
This investigation follows on from a recent insight by Mortgage Introducer, which looked into sale and rent back schemes, where some providers were buying property for as little as 60 per cent of the property value, a scheme highlighted in various daytime television adverts.
A regulated approach?
Dean Mirfin, director of Key Retirement Solutions, says that there is a need for correct advice when it comes to equity release, as not only are advisers dealing with vulnerable people but question marks remain of what is regulated and what is not.
He says: “If people are considering unlocking any cash in their home the only advice is to make sure they seek independent financial advice, ideally from a specialist adviser. They will then be fully armed with enough information to make an informed decision on all the options available. For the time being this is an unregulated sector which is ever growing in popularity and concern.”
Daren Carter, managing director of In Retirement Services, agrees that people are generally ill-informed about equity release, and says brokers need to be aware of the implications surrounding it before offering it as a service. He says: “Clients can be over-ambitious with the debt they take on and they should be encouraged to only borrow what they need.”
Consumer confusion
So is the problem with equity release grounded in regulation? After all, it is a sector where some are regulated and others are not – particularly confusing for those considering a loan.
Back in 2005, Clive Briault, managing director of retail markets at the Financial Services Authority (FSA), claimed that it was warning advisers to address the serious concerns about the suitability of advice being given to consumers on equity release schemes.
He said: “Our work has found another disappointing instance of many advisers giving poor quality advice. Some people releasing equity from their homes are being advised to borrow more than they need, and to invest these additional funds, which can be a high risk strategy.
“It is extremely important that advisers ensure that anyone considering releasing equity from their property understands what is involved and can make a decision that suits their circumstances.”
Problems persist
Despite being regulated two years ago, problems have persisted in the equity release market, although lifetime and interest only arrangements have been incorporated, and as of April 2007, home reversion plans as well.
So where does the FSA stand when it comes to equity release? Is it time to regulate to ensure that there is a level playing field once and for all? Robin Gordon-Walker, spokesperson for the FSA, says: “The key thing to remember is that this areas has two sectors – lifetime mortgages and home reversion plans. Shared appreciation mortgages are covered but not classed as equity release, while sale and rent back schemes are not covered. Equity release is covered by the FSA and there are various rules to protect borrowers. Likewise, there is the same protection for lenders.”
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