Equity release should learn from the past
Duncan Young

December 2005

It is an accepted fact that we are all going to live longer – because of this more people will require some form of equity release. My concern for the equity release market, with its stress on price and the cost of money, is that it is not addressing the real needs of its customers through time. Flexibility to meet lifestyle changes is of paramount importance. If this is not addressed the market, as a whole, will not be able to grow and develop and will simply become a last resort for the financially bereft.

Someone purchasing an equity release product at 65 has a life expectancy of just under 25 years. During that time all sorts of lifestyle events could occur – such as divorce, remarriage, illness, the need to change homes, meeting family commitments and inevitably the death of loved ones. Equity release providers need to devise products that allow an orderly reorganisation of customers’ affairs with understanding, sympathy, the minimum of hassle and hopefully no call centres.

Let us take maintenance as an example. Over a potential period of 25 years it is not unreasonable to expect that a property will need some level of maintenance and repair.

Lifetime mortgages look on property as security for their mortgage and reversion providers see it as an investment. Both expect, or, more accurately, contractually insist, that customers meet maintenance covenants set in their terms and conditions. Failure to maintain can lead to a breach of contract. However is it reasonable for the product provider to insist on this stricture when they know that their customers are getting older and potentially have very limited resources? It is not always easy for the elderly to find builders, seek quotations, manage the contract and ensure a professional piece of work. Something a provider may think of as a simple safeguard measure may prove to be a major cause of concern and stress to the consumer.

What is necessary is an acceptance by product providers of the inevitable (we all age– even product providers). The creation of fair terms and conditions, combined with sensible management solutions, should be in place to meet genuine needs.

When I ran the Household Mortgage Corporation during the recession of the late 80s and early 90s, I had to repossess too many properties but I was also involved with the government initiatives to help keep people in their homes. Many reasons have been given for the problems of that time – high interest rates, rising unemployment and the ending of joint mortgage interest relief at source (MIRAS). Undoubtedly one significant contributor was lenders relying on price and interest rates by selling unsuitable products, such as deferred interest, and radically loosening underwriting standards.

Unfortunately I can see parallels in today’s equity release market – the concentration on price and rate and no real thought for a customer’s future needs. Let us hope we can learn from the past, and not be condemned to repeat it.

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