Advice not price is what drives equity release sales

The market is growing despite the challenges of house price uncertainty and a limited number of products

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KEVIN BRAY, INSIGHT ANALYST FOR BANKING, DEFAQTO

The number of new equity release plans sold in 2010 increased by 3.36% from 2009 representing 22,020 customers, reveals a recent report by Key Retirement Solutions.

The three most popular uses were home improvements, holidays and repaying debts such as credit cards and loans.

Most of these plans were sold through the intermediary channel as customers sought the advice, expertise and choice that brokers provided.

These figures provide a stable platform for growth in this area although challenges remain given the limited number of providers offering products and uncertainty over house prices.

Equity release is a product that relies on the expertise of the adviser to match the right product to an individual customer.

The price of the product is only a small part of the decision making process with the focus likely to be on product features.

We can support the important concept of assessing product features through our Star Ratings – and the new ratings for 2011 were launched on February 1.

Star Ratings have been around for more than 10 years, assessing financial services products in banking, general insurance, protection and wealth management.

They look at the features of each individual product on the market, and provide an independent rating of one to five depending on the overall level of features and benefits offered.

If a product has the widest range of features then it may be awarded a Five Star Rating. A product with fewer features will achieve a lower rating.

For equity release mortgages features such as debt fixed at outset, no negative equity guarantee, availability of a drawdown facility and minimum initial cash lump sum are assessed by us to determine the overall Star Rating.

These ratings can support intermediaries’ recommendations by giving a clear indication of the features provided by products they select for clients.

They also help advisers by providing an unbiased view on the quality and standard of a product, allowing intermediaries to understand where a product sits within the wider market.

Defaqto also provides Star Ratings for offset mortgages, which over the past year has seen the number of products available increase from 145 to 235 and the number of providers rise from 25 to 28.

With most savings rates unable to provide a return above the level of inflation, an offset mortgage can make good financial sense for consumers with a mortgage who wish to make their money work harder for them.

Key features that will help to differentiate products include the number of accounts that can be linked to a mortgage, whether both a current account and savings accounts can both be linked and overpayments and underpayment facilities.