These are exciting times for the equity release market. Progress is being made on a number of fronts particularly in terms of growing business volumes - when one views the latest figures released by SHIP for Quarter 2 this year we must remember that the increases have been achieved in a market still coming to terms with the Credit Crunch and the liquidity crisis. While the equity release sector is not immune from a deteriorating economy it is clearly holding its own and proving its worth for an increasing number of customers.
Those who work within the equity release sector have always been confident of the products themselves and their suitability for those individuals looking at ways in which they can utilise their biggest asset and fund their retirement. Our confidence however has not always been shared by others particularly those who are unwilling to look at the market and the products as they are structured today preferring to focus on what may have been deemed ‘equity release’ in the late 1980s and early 1990s.
Different world
It is obvious that we are a world away from those products, for example, shared appreciation mortgages, which caught a number of individuals back then. The equity release market of today boasts not only products which meet the stringent requirements of the SHIP Code of Practice but exist within a highly regulated environment presided over by the FSA.
We cannot underestimate the impact of FSA regulation in terms of providing consumer and Governmental confidence regarding the use of equity release. It is fair to say that the Government itself has, up until now, been unconvinced about the merits of equity release and, shall we say, blinkered to the opportunity it provides in terms of sharing the burden of retirement planning with individuals.
This is why we were delighted to see the comments made by David Blunkett MP at the recent conference hosted by the Counsel and Care charity. Blunkett’s speech focused on how the Government can meet the challenges of retirement planning at a time when the number of pensioners is outstripping the younger generation for the first time and people entering retirement are likely to be retired for much longer than in previous times. This comes in a period when pension values have fallen back and yet the value stored up in the equity of our homes has never been greater.
Marrying up these facts with the Government necessity to come up with a series of options to mitigate its own retirement burden and it is perhaps little wonder that equity release is finally being reviewed as one of the possible solutions.
Recognition
In his speech Blunkett recognised that the Government will only be able to do so much and if it does not look at these options then it is storing up further trouble in terms of the pressures on our already straining social security system, particularly in the provision of the state pension and long-term care. Blunkett acknowledged that the Government had not been clear, or done, enough ‘about the need to release equity from the enormous homeownership that exists in Britain’.
We should be clear at this point, and this is definitely a responsibility of advisers working in the sector, that equity release is still not going to be for everyone. Other options are available to access the equity in a property including downsizing, however, up until now we as a sector have perhaps not pushed the message home enough about the increasing numbers of individuals for whom equity release is suitable.
The work conducted by SHIP in this area has been valuable as has that of individual providers and advisers. However, in terms of ensuring equity release is seen as safe and a viable option which does not involve ‘losing the family home’, there is still much work to do. For example, there are still many individuals who will currently not entertain the idea of accessing the value in their homes to fund their retirement or provide for their care. There needs to be a sea change in terms of this expectation given that many pensioners could be struggling to fund their care and yet sitting in properties worth hundreds of thousands of pounds.
Misconceptions
In our line of work, and I’m sure advisers experience this as well, clients who could benefit from an equity release product can still be convinced that the product means they are signing away their property. This is despite the fact that drawdown options are readily available and with a home reversion plan, for example, the client can be in total control of the level of equity they sell and the exact amount they keep. This is a misconception that we should all be keen to dispel and a continued programme of consumer education regarding equity release, the options available and the responsibilities of all concerned, will go a long way to reaching this goal.
Even though David Blunkett is no longer a part of the Cabinet we as a sector should be acting on his remarks and entering into more discussions with the Government and Opposition parties about the viability of equity release and the benefits it can provide in the years ahead. We are reaching a stage where there must be full stakeholder involvement from trade bodies, advisory firms, providers, consumer groups, etc in how we go about getting the message across and ensuring that retirement can continue to be something enjoyed rather than endured.
