Research by Key Retirement Solutions has revealed 56% of consumers believe equity release is risky, suggesting the general public has serious misconceptions about these products.
The most common reason consumers felt equity release was risky was due to 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 0% house price growth for the average property used for equity release to fall into negative equity.
In addition, equity release schemes supplied by SHIP members offer a no negative equity guarantee which promises consumers that they will never owe more than the value of their home.
Of those consumers who believed equity release was risky, 45% thought 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. In addition, 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 saw equity release as risky believed this as they felt the product are too complex. KRS says equity release products can appear highly complicated if consumers research them without the help of a financial adviser.
However, it adds the majority of 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 top reason consumers were put off equity release was the lack of regulation, with 15% of consumers believing this made products risky. However, the Financial Standards Association currently regulates lifetime mortgages, which account for 95% of the market, and home reversion plans are in the process of becoming regulated.
Dean Mirfin, business development director at Key Retirement Solutions, says: “The lack of consumer understanding of equity release products illustrated by this survey is alarming. It is worrying that people have perceptions of equity release that are incorrect.
“And even more worrying when you consider that it is these persistent myths that are responsible for people shying away from equity release when it could be the right solution for them.
“With rising concerns over a looming pension crisis, it is important that people are aware of all the options available to help them fund their retirement. With the high levels of equity held in property by the over 65s, there is tremendous scope for today’s retirees to use equity release to boost their disposable income. It is worrying that people may not consider this option due to persisting misconceptions.
“This research clearly shows that we have to work hard to communicate with consumers to ensure they understand the products and are aware of the regulations in place to protect them. We think it is important to work against these misconceptions to make sure everyone can make an informed choice about their retirement planning.”