Although equity release has been around for quite a few years, in many ways it remains a fledgling market that is potentially in the early days of strong and sustained growth.
To get into a position to fulfil that potential, stronger regulation and safeguards have been put in place to help build consumer confidence in the plans.
It is not possible for a homeowner to sleepwalk into equity release by mistake because of the ‘triple-lock’ guarantee – the plans must conform to stringent FSA regulations and clients must deal with a professional adviser and an independent solicitor.
This greater scrutiny is encouraging more providers to get involved, bringing bigger brand names to the market who, through their marketing and advertising activities, are helping to highlight the potential benefits of equity release and creating more trust among the relevant audience.
These factors are helping to grow the market, with the Equity Release Council predicting sales this year are continuing to recover from the depths of the economic crisis and are set to beat both 2011 and 2010.
There are good reasons to believe demand will continue to grow too. Many retirees who are struggling to live on an inadequate income from pensions and savings are sitting on significant property equity. The baby boomers now heading in to retirement in record numbers have generally done well from buying properties and are more comfortable with debt than any previous generation.
Inheritance is a often a key factor for older people. Independent research we commissioned found six in 10 homeowners aged over 55 were unwilling to sacrifice their own living standards in retirement in order to pass on the value of a home.
Equity release can form part of tax-efficient planning to pass on wealth before death – more than half of the homeowners said they would rather pass on money while alive to see the benefits.
With the relevant safeguards in place and demand set to grow, there is an obvious opportunity for intermediaries to get ahead of the trend. So what factors are holding back the market?
In our view, one massive problem is the lack of information and advice. Many older homeowners have, at best, a rudimentary grasp of how equity release works and misconceptions abound. People are concerned about the safeguards and worry they could get trapped in their homes, that they could be forced out, that they would have to pay rent, or that they might end up owing more than the property is worth. Most cannot name a provider and many were unsure where to go for advice.
During the 300 hours of interviews conducted for the Just Retirement research the general feeling was less opposition and more healthy scepticism – they were definitely interested in knowing more about equity release but would need to know more before being persuaded it would be suitable in their circumstances.
This is perfect territory for professional financial planners. The home is often one of the largest assets that people own and should form an important part of the overall financial plan. The options should at least be discussed with an adviser who has the knowledge and experience to discuss the benefits and drawbacks of each course of action.
The homeowners in our research whose homes were valued between £250k-£500k should be a key audience for advisers. Only 2 per cent already had equity release plans, but 28 per cent had heard positive things and 32 per cent knew about the concept but did not know the detail. People with potentially hundreds of thousands of pounds tied up in their homes will expect it to form part of the financial planning conversation. Even if they are not interested now, it is in their minds for later.
This level of interest raises the big question – are you ready to talk equity release with this type of client? Recent research suggested fewer than four in every 10 advisers could offer equity release advice or guidance and only two in 10 had referral relationships in place.
It’s been easy to dismiss equity release as a niche area in the past. Going forward it could be a valuable source of strong growth for many years to come. I’d like to hear from advisers what more Just Retirement or our peers in the sector may do to help those interested in exploring how to participate actively in the market.