Equity release has recently experienced a boom that few other markets have experienced. In 2017 it has become the fasting growing part of the mortgage market - but why has this happened?
It is perhaps surprising that equity release is so popular nowadays, as it has received a lot of negative press from the media in previous years. Many newspapers in the 1990’s shamed certain banks, due to Shared Appreciation Schemes they offered which took a charge over someone’s house, but also a share of the escalating house value. It is stories such as these that led people to believe they cannot trust equity release.
Historically, we have also witnessed high interest fees, meaning that elderly homeowners were agreeing to expensive deals that charged higher interest rates and saw their equity release balances double every 10 years. The media also linked equity release to high exit penalties at times when clients were at their most vulnerable, such as one partner having to move into care.
So, why more people are starting to trust equity release?
Some of the aforementioned issues were justified, but times have changed and so has the equity release market; that is both lenders and advisers have listened and developed their products to address all of these issues. The biggest change has been regulation of both home reversion and lifetime mortgage schemes by the Financial Conduct Authority.
In addition to the FCA, we now have the Equity Release Council which is the trade body presiding over the industry and ensuring a strict code of conduct prevails. Advisers, lenders & solicitors can now sign up to the Council to become members thereby adopting their core principles by which the Council wants the industry to abide by.
These standards include features and guarantees that must be included in both the advice process and the products themselves. For instance: -
- Lenders must include a No Negative Equity Guarantee, to ensure that no homeowner will never leave their children with a debt that is larger than the value of their house.
- Advisers must also be qualified and have passed the entrance examinations required to provide equity release advice.
- Independent legal advice must be provided to clients that is separate from that of the lenders
- It is mandatory that homeowners obtain advice and lenders cannot receive any application without such evidence
All these requirements are laid out in the Equity Release Councils Statement of Principles, design to provide greater consumer protection.
We have also seen the development in the types of schemes being offered by the equity release companies. Another of the main reasons why people are more trusting of safe equity release is because of the flexibility of lifetime mortgages and the features they now bestow. Lifetime mortgages allow the homeowner to live in their home for their whole life. Although Home Reversions provide the same feature, they have fallen by the wayside as they have lacked innovation & flexibility due to the structure of these products where a percentage of the property is sold to raise the tax free lump sum. As a consequence, Home Reversion plans now account for less than 1% of the whole market.
With greater flexibility has become better education. This had led to consumers having a better understanding of how these products can actually assist in areas where they were never considered practical before. Traditionally, uses for equity release schemes were home improvements, holidays and new car. These days we are seeing more inter-generational reasons and helping the family, rather than just the homeowners themselves.
People are also becoming more aware of the value in their property, especially when they notice how many young people are struggling to get on the property ladder. They want to harness the value of their property, and one of the easiest ways to do this is to embrace safe equity release.
Hopefully, the equity release market will continue to innovate and ensure a protective shield is placed around consumers when taking out a lifetime mortgage. The market has come a long way improving its image and the products it provides. It would not want to fall short of these high standards it has set itself and continue helping the over 55’s to have the financial freedom they require at a crucial period in their lives.