Equity release is an interesting corner of the wider mortgage market. Having a far smaller section of potential clients – namely those aged 55 and above – brings with it certain opportunities and certain challenges. Of course, our clients tend to be more experienced, perhaps wiser than their younger counterparts as they have been through it all before, usually many times. But it also means that more often than in the mainstream mortgage market we are dealing with much older clients who, on occasion, could be classed as ‘vulnerable’’.
Quite rightly, the collective ears of the industry and the FCA are pricked up when the word ‘vulnerable’ is tossed around. Too many mistakes have been made throughout the history of our industry for this not to be the case. However, I do think today’s market, especially equity release, is safer than ever. But that’s not to say that mistakes won’t be made and lessons won’t need to be learned – especially in today’s uncertain world.
The FCA appears to have tried to get ahead of any problems the ongoing cost of living crisis may cause by issuing a letter to the later life mortgage market, expressing what I believe are some valid concerns. David Raw – co-director, consumer and retail policy division supervision – penned the ‘Dear CEO’ letter, and he makes a very good point that although inflation may be hitting us all and the average figure is around 9%, ‘the poorest households may face average inflation rates as high as 14%.
Ultimately, what this means is that many people will be scrambling to find a solution to their financial woes. So, for those lucky enough to have property equity, options like the lifetime mortgage may become more alluring. Therefore, they must be clearly understood, entered into only after the most expert advice possible and designed to fit with all types of situation.
I think we have made enormous progress on this, to be fair. There are more products available today than ever before – in fact, choice in 2022 is about three times that of 20192 – but this crisis brings into sharp focus the need to be ever vigilant for clients who may not fully understand what they are entering into.
Therefore, I will certainly be throwing my backing behind the FCA’s new ‘Consumer Duty’ aimed at increasing standards of care across the industry and training us all to see and step in when foreseeable damage may be approaching our customers. Equity release has been consistent in driving forward these sorts of standards and consumer protections, and one only has to look at the most recent Equity Release Council Consumer Standard – the right for all customers to make penalty-free repayments – to see that the industry is ready and able to take up this task.
However, I do think it is important to go deeper into what the FCA are warning us about. For example, the letter also points to a fear that ‘‘poor product design and governance could lead to consumers purchasing later life products they don’t fully understand.” Although I do think this a rarity today, I think we can still do better here. This of course comes down to adviser education and training. I think we in the industry would all agree that the advisers who dedicated themselves to this arena take their role seriously and are constantly looking to improve their knowledge and education along with an understanding of a complex customer base.
Secondly, the letter also points out a concern that they have discovered a ‘trend of lifetime products being increasingly sold to younger customers’. I think that we, as an industry, are now servicing a much wider range of clients in terms of age – but I don’t think this is a particularly bad thing. Plus, if we look at the data from the Equity Release Market report from Spring 2022, returning customers are actually getting older4. The average returning drawdown customer has gone from 72 years and 6 months to 73; the average lump sum returning customer has jumped from 69 years and a month to 70 and a half; and the average returning client taking a drawdown further advance has positively leaped from 70 years and a month to 71 years and 7 months5. Fascinating, eh!
Regardless of any quibbling over the data, we do need to take on board everything the FCA are saying. I think this crisis that we find ourselves in means all financial industries must be on red alert for any consumers heading towards a poor decision. And as equity release grows once more, it will be the mark of a good and robust market to turn away customers going down the wrong route and help them back onto the right path with our expert advice.
Andrea Rozario is chief corporate officer at Bower
