“The Mortgage Market Review still has a long way to go before the Financial Services Authority publishes its final proposals but it is already clear that it will be good for the equity release market.
Together with a focus on compulsory advice and simple disclosure of fees, the general application of principles in the mortgage market to equity release points to this sector being confirmed as part of the mainstream.
Consultation is open until March 30th with the FSA planning to publish a feedback statement and final rules in the summer and then, all being well, to implement proposals in summer 2013.
A lot can of course happen during that time frame – not least in the equity release market itself.
It is almost certain there will be further product innovation building on the success of drawdown and the launch of enhanced equity release.
It is likely that there will be further market growth building on the recent encouraging figures from SHIP which reported total advances at a 2-year high in the fourth quarter of 2011.
Of course SHIP acknowledged that total advances for 2011 at £788.6m were lower than 2010’s £803.6m due to market consolidation.
However the key statistic in the market report was that intermediaries sold 90% of plans leaving direct sales with just 10% - which was the highest level of IFA sales since records started in 2003.
The dominance of advisers points to the way ahead for the market and the reason why the MMR is particularly good news for equity release as a whole and IFAs.
Compulsory advice
The MMR has highlighted the need for compulsory advice in equity release which is particularly welcome.
SHIP – where I was chief executive and chairman – has of course long had that as a principle.
SHIP announced in 2006 that from August 2007 onwards SHIP members would no longer accept business from advisers who did not have appropriate lifetime mortgages qualifications.
The MMR call for compulsory advice reinforces the importance of advice – in line with the market reality – for potentially vulnerable customers.
There will be no opt out option available which can only help consumers and protect IFAs.
The MMR has a general focus on the issue of mortgages and borrowing in retirement which is a long overdue development.
It is an entirely good thing because it is already clear that a lot of interest-only mortgages held in the market will end up as lifetime mortgages.
Like it or not, many lenders already have major interest-only mortgage portfolios which will not be repaid at retirement.
A lifetime mortgage will then be an option for clients who need or want to reduce their outgoings.
The industry will be forced to innovate to adapt to reality with income verification at the centre not only of advice, but also of lenders’ responsibility to their customers.
The MMR is in tune with market reality and consumer behaviour reflecting the change in attitudes to and the growing awareness of borrowing in retirement.
The proposals highlight the need for plain and simple language and plain and simple explanations of products and their potential limitations.
That has to be good for clients and will further improve the whole of market by ensuring customers are offered the different products available.
Innovation is one of the main drivers of the equity release market with the development of drawdown and the launch of enhanced equity release.
Plain and simple language will further drive that development.
Transparency and greater disclosure of fees as emphasised throughout the MMR is in tune with the drive across all financial services.
It can only be good for client information and understanding. It will also drive competition in the market which again is only good for intermediaries.
The key however is that the MMR talks about a “read across” of the principles applied to the mortgage market to the equity release market.
That is only right and proper as it acknowledges that equity release market should be seen as firmly part of the mainstream in mortgages and in retirement planning.
The equity release market long had a focus on improving and maintaining standards whilst striving to increase business.
All sorts of organisations that deal with the elderly are aware of equity release and how it can help.
The MMR works with the grain of what is happening in society and provides sensible guidelines to protect consumer while enabling lenders to innovate and advisers to do what they do best.
The equity release market will benefit from the MMR by becoming at long last a fully acknowledged part of the mainstream mortgage market.”
