Editor’s note: Equity release should look to itself for innovation


The equity release market has been seemingly forever “nearly on the cusp of a boom” and it lives up to its image as the ‘nearly man’ of financial services quite convincingly.

That said, the sector has experienced rapid growth recently, increasing by 24 per cent year-on-year to £1.7bn in 2015. However, this equates to just 0.7 per cent of total mortgage lending.

Many factors are put forward to explain why the sector has not taken off in the UK as it has in other countries, but regulatory restriction is one of the main ones.

The FCA has acknowledged the problem and last week introduced a highly significant rule change for the market. It is allowing lifetime mortgage lenders to skip affordability tests for borrowers on interest-charging loans that can convert to roll-up loans.

Council of Mortgage Lenders director general Paul Smee says: “This may look like a small change but it is a really significant one that should allow the lifetime mortgage market to develop in a far more sensible and consumer-friendly way.

“It removes one barrier to the provision of sensible, safe and worthwhile lifetime mortgage products.”

However, regulation is not solely to blame and the industry must look to itself for the answer.

For the past 25 years the Equity Release Council and its predecessor, Safe Home Income Plans, have had a set of product protections in place ranging from a no-negative-equity guarantee to allowing the borrower to remain in their home for the rest of their life or until they are taken into long-term care.

But the no-negative-equity guarantee, in particular, is deemed to be holding back the sector, particularly in the provision of higher-LTV products.

Few would argue that the protections should be scrapped and, as the experts we spoke to say, those protections and the trade body that created them do a good job of looking after consumers.

But if the sector is to grow to its full potential, all areas of reform should be considered.