Our four product guarantees or ‘code’ have been well-covered in the media since the organisation was first launched in 1991. All our members must offer a fair, simple and complete presentation of their plans, insist clients obtain independent legal advice, offer clarity of costs, the ability to move without financial penalty and, perhaps most importantly of all, a no negative equity guarantee.
But what do these guarantees mean in human terms? What is the real value of our logo to consumers and its resonance with everyday life?
The code was originally created to bolster consumer confidence by clearly identifying the product features that ensure a safe plan. Over the years these features have increasingly been accepted as the starting point for clients when looking at a scheme.
Peace-of-mind
The code as well as offering tough guidelines for the industry was also designed to provide peace-of-mind to the consumer. Regulation does not guarantee the products will be any good. With one of our members clients have the right to stay in their home for life, providing ultimate security – an important promise when you consider the emotional attachment an elderly customer may have to a family home.
On the flipside, our providers also give clients the right to move home if necessary without financial penalty. This flexibility of outlook recognises that people’s circumstances can and do change. For example, after the death of a partner, a move to a smaller dwelling may well be required.
The insistence on independent legal advice is one of our fundamental principles. Put simply, we believe that if a solicitor is wholly-independent of the provider and any external party, and is instead solely responsible to their client then the customer will receive the best advice available.
After all: ‘He who pays the piper, calls the tune.’ This independent process also helps to reassure beneficiaries and will hopefully avoid claims of mis-selling in the future.
Looking for clarity
In addition, the code places a heavy emphasis on clarity of costs and a plain speaking approach to explaining the pros and cons of any plan. As we do not allow execution-only business it ensures that advisers have to cover the key issues, such as what will happen if a client wishes to move home or has to go into nursing care, what the implications to a client’s state benefits might be and consultation with families on the impact on future legacies.
One of the most vital aspects of the code (and a key deciding factor for members’ clients) is the no negative equity guarantee that ensures neither they nor their heirs will ever owe more than the value of their home – a vital guarantee amid increasing speculation about a softening property market.
The Institute of Actuaries estimates the cost of providing such a guarantee is around 75 basis points per annum. This factor, along with having to raise money via long-term swap rather than money market rates, accounts for the slightly higher cost of equity release compared to the conventional mortgage sector.
Negative equity risk
The Defaqto report published in May again emphasised the value of this guarantee. It calculated the average mortgage account would double every ten years. With the average 65-year-old male now expected to live another 19 years there is a real risk that negative equity would hit during their lifetime.
Our own research shows that if there is a house price deflation of –2 per cent the average equity release property would take just 17 years to go into negative equity. We believe there is no doubt that by offering such a guarantee our members offer greater peace-of-mind to an elderly and often vulnerable consumer (and their beneficiaries).
We believe the code provides clients with product features that carry real value. The logo means consumers can buy in confidence and the guarantees have helped shape product design in the UK and further afield.
People will buy plans that have value to them personally and to this end we feel it is telling that recent statistics from a member provider showed that 75.3 per cent of applicants cited being a member of our organisation as a reason for selecting that product. We believe that our four core product guarantees have a real value to consumers and help provide a benchmark for the rest of the industry.
Jon King is chairman of SHIP
