The study, entitled ‘New Research on Consumer Demand for Retirement Borrowing’ written by Dr Louise Overton of the School of Social Policy at the University of Birmingham and Lorna Fox O'Mahony of Essex Law School at the University of Essex, called for innovation in the equity release market with new affordable and flexible products.
It said: “The one-size-fits-all approach to consumer protection in the current equity release market has also been a source of frustration for some equity release consumers.
“While Equity Release Council standards and safeguards play an important role in consumer protection, these standards restrict product choice and flexibility. One requirement in the ERC code of conduct is that customers have a no negative equity guarantee, which means that they will never owe more than the value of their homes and no debt will ever be left to the estate.
“Some stakeholders questioned the necessity of this blanket approach to consumer protection, considering it to be one of the factors contributing to limited demand.”
The report added: “A further consequence of the ERC standards is that all ERC-compliant lifetime mortgages carry a fixed (or capped) interest rate for the life of the loan.
“It may be that this particular product feature, which contrasts with the conventional mortgage market where there is limited demand for fixed interest rates in excess of 10 years, is also a potential barrier to greater product flexibility and increased customer demand.”
In a bid to self-regulate, members of the Equity Release Council must provide a no negative equity guarantee and a fixed interest rate for the lifetime of the loan.
ERC chairman Nigel Waterson defended the trade body’s consumer protections, which he said are essential in maintaining the industry’s growing reputation.
Rather than fiddling with protections, he said the best way to grow the market is for the government, regulators and the industry to work together to raise awareness of the value of equity release – a point also brought up within the CML report.
He said: “What helps persuade people that equity release is a safe and reliable product is to a large extend the protections in place.
“I’m all in favour of innovation as long as it’s not at the expense of consumer protection.
“I welcome the report which is a useful contribution to the debate, although some bits I agree with and some bits not so much.
“What’s holding the market back is awareness and I support the report when it says we need a joined up approach from the industry, regulators and government.”
He added: “It is right to highlight the role of equity release. We are a solution already for older borrowers who can’t access mainstream mortgage lending.
“There is plenty of anecdotal evidence that older borrowers are being turned away by standard mortgage providers so we are plugging the gap.”
Chris Woolard, director of policy risk and research at the Financial Conduct Authority, invited the equity release industry to consult on the future of the market last month, and Waterson said this is well under way.
He added: “We have taken up the FCA’s invitation with enthusiasm. We’ve started the process but it will take a while to reach a conclusion.
“There are big issues about interest-only mortgage prisoners plus a range of other issues – It’s good people are talking about this.”
The CML's report consulted stakeholders from financial services, regulators and government to set out proposals to grow the later life sector.
Other issues in the CML report were the consequences of increased life expectancies, as there is a danger of people running out of money by underestimating how long they will live, social care shifting from the state onto the private sector and the cost of buying property, which is acting as a barrier to downsizing.
The CML will publish a set of proposals designed to help the industry, regulators and government take steps to address issues with later life lending over the next few weeks.
