The equity release market has boomed in recent years, and it is expected to grow even further as rising house prices and increased uncertainty in retirement persuade a new wave of over 55s to consider releasing cash from their home.

A recent report by Key, an equity release lender, found that homeowners unlocked £1.07 billion from their homes in the year to April.

That figure is 12.8% higher than the previous 12-month period, despite the housing market being closed for a significant period during the first lockdown.

It’s really no surprise that older homeowners are looking to unlock this cash, given the house price growth seen in the last 12 months.

According to the Office of National Statistics, house prices in the UK rose by 10.2% in the year to March 2021.

This was the highest annual growth since August 2007, and showed how the housing market has defied expectations during the economic chaos caused by Covid-19.

That same economic chaos also prompted many retirees to consider their financial situation in other ways.

Interest rates are at all-time lows and the stock market has endured a turbulent year. As such, many over 55s have also looked to equity release as a safe and easy way to generate cash.

These extra funds could have been used to pay off existing debts, fund home improvements or maintain their standard of living.

However, while the influx of new customers is likely to be welcomed by lenders, firms in the sector must ensure they are not creating a ticking time bomb of potentially vulnerable homeowners in the future.

Financial vulnerability

A report from the Financial Conduct Authority, published in October, warned that 53% of adults were now showing signs of financial vulnerability, three million more than before the pandemic began. And many of these people would be of the older generations, the type who may turn to equity release in times of financial difficulty.

Retirees like these typically have a relatively fixed income, meaning they can be left exposed if interest rates or inflation rises, or if house prices fall.

Equity release lenders must therefore be vigilant and ensure that their loans are appropriate for the homeowners and, crucially, that these customers are fully capable of making an informed decision about their finances.

Different products can also pose unique challenges. For example, drawdown lifetime mortgages where borrowers access their housing equity in smaller sums rather than a one-off payment may make it harder for lenders to detect financial vulnerability, given borrowers are less likely to interact with their adviser at these stages during the product lifecycle.

Mitigating risk

Lenders may have to take action to mitigate these risks for both themselves and the end consumer while being able to identify and support customers who are showing signs of financial vulnerability.

Without a doubt, the modern equity release industry has implemented strong standards in this area, but there are still some clear pressure points in the lending process.

For a start, lenders have typically developed approaches to vulnerability assessments in-house, and whilst they are guided by the regulator’s advice, the ‘tick-box’ style approach can produce greatly varied outcomes, with too much scope for individual interpretation or subjective analysis.

As a result, one lender’s assessment of a customer’s vulnerability may not be in line with another’s.

Using clinical expertise

Clinically-based platforms like Comentis are seeking to remove these inconsistencies by modernising this assessment.

With this model, client vulnerability can be identified using a clinical tech-driven approach, which leads to much better outcomes for both providers and their customers.

This is achieved by combining world-class clinical expertise, including mental health experts and psychologists, with modern technology developments. Platforms like these can identify and flag vulnerable clients objectively, consistently and, crucially for growing equity release firms, at scale.

Regulator pressure on equity release firms is only likely to increase further in the future, particularly as the amounts being withdrawn by customers continue to rise.

Key’s report found that the average homeowner who took out an equity release plan in the last year received £103,710. That figure is 25% higher than the £83,000 released in the months before the pandemic struck in Britain.

Moreover, as property prices continue to rise, the number of older homeowners looking to release equity will also grow – and the amounts being released will also increase.

Equity release lenders must therefore ensure that, in the rush for new business, they have the most robust assessments in place for their customers. Going the extra yard today could make all the difference in the future, whatever that may hold.

Jonathan Barrett is founder and CEO of Comentis, which he founded in 2021 with Tim Farmer a clinical expert with over 25 years’ experience of working with people with reduced cognition