A flourishing retirement lending market requires a joined-up approach across the industry, regulators and the Government
My chief challenge on becoming chairman of the Equity Release Council was to raise awareness of the market. Last year, we finally caught the attention – for better or worse – of the Government, regulators and media. This was driven in part by the plight of so-called ‘interest-only prisoners’ and by the highly publicised problems of older customers seeking normal mortgages.
The equity release sector has engaged enthusiastically with regulators and policymakers, and is delighted the FCA wants to grow it. A useful start would be for it to stop referring to equity release as ‘higher risk’ and to our customers as ‘vulnerable’. It would also help if it could talk more to its colleagues at the Prudential Regulation Authority who have a different agenda altogether – one which could stifle funding for equity release.
Older borrowers have been some of the hardest hit by affordability measures following the MMR. Thankfully, we have now reached a point where there is consensus that a concerted effort is needed to ensure this demographic is properly served, in terms of both products and advice.
This is, of course, the bread and butter of our sector. We only lend to the over-55s and the average age for releasing equity is 71. We had another record year last year, with some £5m of equity being released every day. And, while it remains a long way from its full potential, there is growing recognition that products such as lifetime mortgages will be a vital part of the broader solution to the challenge of supporting our ageing population.
A flourishing retirement lending market will require a joined-up approach across the industry, the regulators and the Government. But any action must respect the existing differences between lifetime mortgages and standard mortgages.
The sector is proud of the substantial consumer protections (for example, the no negative equity guarantee) hardwired into our members’ products. For us, affordability is not really the same issue as for mainstream mortgage lenders.
Although there are equity release products that allow a borrower to pay interest, or even capital, as they go along there remains the option to revert to roll-up. This means our customers can normally never be in default and lose their homes.
We can only sympathise with normal mortgage lenders as they strive to establish affordability criteria that is fair and transparent. After all, in the age of pension freedoms, how reliable is a pension stream of income? Nor is downsizing a reliable strategy, with only 1 per cent of this age group actually moving house last year.
Last year, we launched a White Paper setting out our policy recommendations for the Government and regulators, and we were pleased to see the Treasury Select Committee endorse our call for housing wealth to be included in Pension Wise conversations. Equity release is not the answer for all but with an ageing society and longer retirements to fund, tapping into housing wealth offers many the opportunity to increase their financial security.
We need to continue innovation that has seen features such as drawdown, inheritance protection, repayment flexibilities and the option to make interest repayments become part of today’s equity release product range. Last year saw increased competition, which has pushed rates for equity release products to a record low.
The year ahead
As 2016 unfolds, we will continue discussions with funders, providers and advisers about boosting the market even further. We will also be working with regulators to identify whether there are actions that can support existing products, as well as new products and entrants into the market, without compromising on consumer protection.
Another challenge is to establish closer working relationships across the residential and lifetime mortgage markets to make sure consumers are afforded the best possible choices and support.
Rather than one segment trying to replicate what the other already does, the best approach would be to make the most of the expertise that exists in both arenas. Together, we can ensure older customers are treated fairly and transparently, as well as being assured of a worry-free later life.
Nigel Waterson is chairman of the Equity Release Council