View more on these topics

‘Relax ERC standards to help innovation in equity release’

Mirfin-Dean-CUT-White-620x430.jpg
Mirfin: ‘Give consumers opportunity to forgo guarantees’

The Equity Release Council is facing calls to reform its product standards to increase innovation in the sector.

The call comes a week after the FCA announced it would allow lenders to apply to waive affordability tests for borrowers on interest-charging loans that convert to roll-up loans.

However, experts say more innovation in the sector could be achieved if the ERC watered down some of its product standards or allowed consumers the choice of waiving them.

For the past 25 years the ERC and its predecessor, Safe Home Income Plans, have abided by the following rules:

  • Lifetime mortgages must be fixed or, if they are variable, there must be a cap that is fixed for the life of the loan
  • Borrowers retain the right to stay in the home for their entire lives or until they need to move into long-term care
  • Borrowers must have the right to move to another property, subject to that property being acceptable to their product provider, and
  • Providers must offer borrowers a no-negative-equity guarantee.

While many praise these standards for their protection of consumers, some argue that they may be holding back the market.

Key Retirement founding director Dean Mirfin says: “One of the challenges for further innovation is not so much regulatory but around the issue of some of the standards we have through the ERC. They are very dear to our hearts but the challenge is that you can’t have a high-LTV product with some of those guarantees. So you either keep the products safe and therefore stop a group of customers from borrowing, or you give that group the choice to forgo some of the guarantees.”

Equity Advice managing partner Stuart Wilson says: “It is 25 years since those guarantees were put in. Have we been in a position where one size fits all? Maybe we are starting to come into an environment with more competition, pricing challenges and funding challenges. It is about getting it right for the consumer. As long as we stick with that, the product designs and warranties are secondary – they can be tailored to the customer’s needs.”

ERC chairman Nigel Waterson says:  “In their 25 years of existence, the industry standards have been vital to establishing consumer confidence and supporting a safe and reliable equity release market.

“This remains the case, and it is important innovation does not come at the expense of continuing protection and long-term sustainability. This means consumers being properly advised on their options and products being ‘future-proofed’ against market developments and changing circumstances.

“It is important to remember these are long-term plans:  the idea of a no-negative-equity guarantee may not appeal to some customers in their 50s but things may look very different when those customers reach their 70s.”

Regarding the FCA’s removal of affordability requirements, the industry was welcoming.

The FCA says: “We have decided to make this modification available because we do not consider that an affordability assessment is required where there is no risk of arrears and repossession in the event of missed payments.”

Council of Mortgage Lenders director general Paul Smee says: “This may look like a small change but it is a really significant one that should allow the lifetime mortgage market to develop in a far more sensible and consumer-friendly way.

“It removes one barrier to the provision of sensible, safe and worthwhile lifetime mortgage products.”

BSA head of policy Paul Broadhead says the FCA’s action shows its willingness to review and change older policy.

He says: “There’s an acceptance that the regulator’s stance is doing its job but the world is going to change in the coming years and regulation needs to change with it. That was further cemented when it made the change to affordability on lifetime loans.

“What it did was say: ‘Because the products have changed and the way that people want to take them out has changed, we recognise that we need to change our rules.’ Rather than going through a long convoluted process, it’s just done it.”

Recommended

Paul-Thomas-700.jpg

Editor’s note: Equity release should look to itself for innovation

The equity release market has been seemingly forever “nearly on the cusp of a boom” and it lives up to its image as the ‘nearly man’ of financial services quite convincingly. That said, the sector has experienced rapid growth recently, increasing by 24 per cent year-on-year to £1.7bn in 2015. However, this equates to just […]

Sign-Signing-Letter-Contract-Business-700.jpg

Your Views: Small lenders lead the way on equity release

Small lenders lead the way on equity release Your article concerning the FCA investigation into product access for older borrowers contained a number of comments, which I felt required a response. Sue Lewis, chairman of the Financial Services Consumer Panel, made several points. I agree that traditional lenders need to look at maximum age limits […]

Sign-Signing-Letter-Contract-Business-700.jpg

Your Views: Equity release sector is likely to experience landmark events in 2016

Equity release sector is likely to experience landmark events in 2016  For equity release, 2016 may be a year to remember. When measuring the success of something, we often point to landmarks, events and single points in time that signalled the upward trend. Other equity release commentators and I heralded the annual lending figures breaking […]

Equity-release-house-home-700.jpg

Equity release market hits record-high in 2015

The equity release market hit an all-time high of £1.71bn in 2015, according to research from Key Retirement. The total value of property wealth released last year rose 24 per cent from £1.38bn in 2014, Key said in its Equity Release Market Monitor. On average pensioners withdrew £72,000 per household in 2015, with this figure rising […]

Greg Broomer 2

Survey looks at the challenges facing businesses post auto-enrolment

A survey conducted by Johnson Fleming at the Pension & Benefits Show 2014 highlighted the key challenges faced within organisations post auto-enrolment. The results showed that communicating the changes and the value of them to staff, and receiving timely data from the payroll provider proved to still be the most challenging aspects of managing an auto-enrolment scheme.

Newsletter

News and expert analysis straight to your inbox

Sign up
Comments
  • Post a comment
  • Carl McGovern 11th April 2016 at 4:16 pm

    Although this would be a step in the right direction, who won’t more lenders come out and offer traditional repayment Mortgages, or interest only Mortgages to borrowers with pension Income? I have never been able to understand why a cut off age of between 65 and 75 is the norm, when a client either already has, or can prove the will have pension income to validate the Mortgage. Lifetime Mortgages do help, the older borrower, but the higher rates and fees, combined with onerous tie ins can be off putting.

    Despite some lenders now offering a term to age 85 or beyond, this is more the exception than the rule.