KRS says consumers don’t understand equity deals

Research by Key Retirement Solutions shows 56% of consumers believe equity release is still risky.

The specialist equity release IFA says this suggests the general public has some serious misconceptions about the products.

The most common cause of concern is the threat of negative equity, with 61% of consumers concerned about being left with a house worth less than the loan or mortgage secured against it. But KRS says this is a highly unlikely to happen as it would take 22 years of zero house price growth for the average property used for equity release to fall into negative equity.

Also, equity release schemes supplied by Safe Home Income Plan group members offer a ‘no negative equity’ guarantee which reassures consumers they will never owe more than the value of their home.

Of those consumers who believe equity release is risky, 45% think that it might lead to the loss of their home. But in reality equity release products require no monthly repayments as the interest rolls up and is added to the loan amount. All SHIP providers guarantee consumers a right of tenure for life as well as the freedom to move home in the future without penalty.

A further 34% of respondents who think equity release is risky believe this because they feel the products are too complex. KRS says equity release products can indeed appear complicated if consumers research them without the help of a financial adviser.

But, it adds, most providers encourage potential customers to speak to an adviser who will guide them through every step of the decision making process and do their best to clarify all aspects of the products.

The fourth most cited reason consumers are put off equity release is the lack of regulation, with 15% of people believing this makes products risky.

The Financial Servives Authority currently regulates lifetime mortgages, which account for 95% of the market, and home reversion plans are also to be regulated.

Dean Mirfin, business development director at Key Retirement Solutions, says: “The lack of consumer understanding of equity release products shown by this survey is alarming.”