Equity release providers need to educate brokers and customers and “de-bunk” myths about products in order for the sector to continue to grow, according to a panel of experts at the Mortgage Strategy Leaders Forum.
All three panellists agreed that the equity release market is unrecognisable from 20 years ago and that features, rather than interest rates, are key to getting more customers to consider equity release products.
Key Group chief product officer Dean Mirfin said: “We have to look at customer behaviour and what they need. For example, some lenders have introduced a three-year rule for couples where if one partner dies or goes into long-term care, they can repay the loan penalty-free. Lenders have looked at past issues and how major life events can change people’s plans.”
Just Group director of propositions for retirement lending Peter Borley said there’s a need to change people’s opinions of equity release. “I went to a marketing event and initially seven out of eight people said they would buy equity release but one person was against it – what they said was wrong and applied 20 years ago – but it still changed the opinion of everyone else in the room. So we need to de-bunk the myths around equity release.”
But it’s not just consumers who need to learn about the modern-day equity release market. There’s also a lot of work to be done around educating brokers about the products now on offer and how they work.
Mirfin said: “Product providers need to concentrate on needs rather than wants. Needs might include a lack of pension provision, paying for long-term care or gifting money to family. But it’s important to remember equity release won’t be right for everyone so we need to understand what’s motivating people to do it.”
Pure Retirement chief executive officer Paul Carter said there’s a need to “normalise” equity release and pointed to how acceptable the product is in markets including the US, Australia and New Zealand. He said: “Brokers see it as a specialist area and refer it – the referrals market has grown over the last 12 to 18 months.”
Equity release is often criticised for having high interest rates, but is this criticism fair considering the guarantees and features equity release offers?
Borley said: “High interest rates can put people off taking out equity release but they get a fixed rate for an average of 18 years. They also get the no negative equity guarantee so never owe more than their property is worth. So the lender carries a lot of risk.”
Carter said: “The first equity release product we offered had a rate of 8.9 per cent while today the average interest rate is 3.57 per cent. For lenders to be able to offer the features on offer for that rate is outstanding.”
The panel agreed that critics often forget that equity release is funded in a different way to mainstream mortgages and that people buy equity release products for what they offer, not what they cost.
Mirfin says equity release compares well versus retirement interest-only mortgages. “Our lowest rate is 3.47 per cent fixed for life whereas the best RIO rate is 3.68 per cent for five years so RIO is more expensive over the long-term.”
Borley pointed out that the average age of an equity release client is 71, an age group that doesn’t tend to read the financial press and that may have paid off their mortgage years before. He said: “We shouldn’t expect them to understand the different products and there’s a need to point them in the right direction.”
The panel all agreed that product features and flexibility were the important factors in attracting more customers. For example, Borley pointed out that many customers need regular payments rather than a cash lump sum while Carter suggested the time could be right for a “build your own” style product to enter the market.