Spend time in almost any company, large or small, and it soon becomes apparent that perhaps the greatest threat feared by the organisation’s owners and management is damage to its reputation. Competition, however fierce, is to be expected, an integral part of business life, which means it can be countered in a variety of ways. A host of additional challenges, from recruitment to exporting can, at times, be difficult and expensive, but there are ways in which they too can be satisfactorily addressed.
In other words, while today’s companies can handle most matters, the smart ones remain mindful of Benjamin Franklin’s famous adage: “It takes many good deeds to build a good reputation and only one bad one to lose it.”
Reputational damage can be the product of a data breach, poor customer service, significant accounting errors, or a failure to comply with industry regulations. Whatever the cause, as bad news can reach a global audience within seconds, companies must remain vigilant, permanently conscious of the disturbing impact a serious dent to their reputation this can have. Perhaps the best way a company can ensure it avoids unwanted attention is to follow its established industry rules and standards.
It could be argued that the rudimentary financial products known as Safe Home Income Plans (SHIP), which first appeared in the 1990s, attracted a bad reputation almost as soon as they arrived on the market.
From a disappointing start, SHIPs’ reputation went gradually downhill. The equity release products of that generation were soon considered expensive and a little too one-sided; viewed as a product of last resort. Moreover, the small number of lenders who ventured cautiously into this forerunner of equity release often failed to recognise the benefits of good customer service, not least because they insisted upon making life difficult for homeowners to effect changes to their property once the SHIP documentation had been signed. One disgruntled SHIP client likened some of the sector’s lenders to “medieval landlords”.
And so the label stuck.
Gradually, however, the sector evolved. Lifetime mortgages were regulated in 2004; three years later, home reversions also became subject to regulation and in 2012, the Equity Release Council (ERC) was formed.
Over the past decade, the equity release market has boomed, primarily because the ERC has understood the benefits of implementing exacting product standards, while welcoming further regulation of the sector by the Financial Conduct Authority.
Yet despite equity release becoming a mainstream financial product, a sizeable number of consumers, as well as some financial advisers, remain oblivious to the essential changes that have taken place and in some instances, continue to unquestioningly accept the myths surrounding equity release, many of which first emerged almost thirty years ago.
Tackling these myths is one of the ERC’s many roles; it starts by ensuring that its members act with integrity and transparency by offering high-quality products and services to customers. People considering equity release should, therefore, make sure the company they’re dealing with is registered by the Equity Release Council – with Equity Release Supermarket being a long standing member.
The ERC’s Standards Board exists to ensure that equity release products are safe and reliable for consumers. The board’s chair, Chris Pond, is mindful of the sector’s current and longer-term relevance, as well as the importance of industry-wide standards that ensure members can guarantee their customers products and services which conform to best practice.
“Allowing people to access some of the savings built up in the value of their homes could help fill the increasing gap in retirement incomes and long-term care costs, but people must have confidence that they will be treated fairly…, which is why the maintenance of the highest standards of consumer protection is so essential,” says Mr Pond.
There is no need for us to present every clause of every standard for readers here, but it’s worthwhile referring to some of the ERC’s important, non-negotiable requirements of their members, each of which is designed to put homeowners’ minds at ease.
Perhaps the greatest misconception surrounding equity release is the (inaccurate) belief that homeowners can be forced out of their home. The ERC position is unequivocal: “You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract,” it states.
Then there are people who believe that once they agree to release equity from their home, they can never move from it. This, however, is another myth.
The ERC states that homeowners “have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan.”
In other words, homeowners are allowed to move to another property and take their lifetime mortgage with them, provided the property is a suitable alternative, ie it should have a value at least equal to that of your current property and considered saleable at some point in the future.
“What if the property market crashes and my outstanding equity release loan is larger than my home’s value?” This is an understandably frequent question put to equity release advisers. Again, however, the ERC answer is clear.
“The product must have a ‘no negative equity guarantee’. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more,” says the statement issued by the ERC.
Not surprisingly, some folks considering equity release have recently voiced concerns about future levels of interest rates; ‘what if they go through the roof?’ is a common poser put to advisers. ERC rules are unambiguous. “For lifetime mortgages,” says the body, “the [interest] rate must be fixed for each release or, if variable, the rate must be capped for the life of the loan.” Homeowners can be assured that even if rates do rise in future, they’re not going to be affected.
Finally, the ERC’s answer to the query regarding the ability of homeowners to reduce their equity release loan is refreshingly clear: “All customers taking out new plans which meet the ERC standards must have the right to make penalty free payments, subject to lending criteria.”
Note too that homeowners are not ‘locked-in’ to a lender’s legal services; they’re entitled to take independent legal advice, while they must be given details of all costs associated with setting up their equity release plan. The tax implications of equity release must be fully explained, while homeowners must be advised about how changes in house values could affect some plans.
The ‘professionalisation’ of the equity release sector has taken a while, but it was absolutely essential. Does this mean that from now on everything will go swimmingly with every single equity release application, every single time? Of course not, but the sector, under the guidance of the ERC and regulation of the FCA, is no longer a place where myths can sprout. Enormous efforts have been made to rectify the reputational damage the sector suffered 20-30 years ago; given the burgeoning popularity of equity release, it’s fair to say those efforts have been successful.