Mortgage brokers are being encouraged to improve their knowledge of the equity release market — even if they do not plan to advise on the products themselves.
Experts in the field say all advisers should have a general understanding of later-life lending options in order to identify clients who might be better suited to these solutions than to home loans or retirement interest-only (Rio) products. In such cases, brokers who do not want to specialise in this area can set up referral agreements to ensure their clients can access the right product for their needs.
Even if you don’t know the detail, you should have a top-down view
Industry commentators point to a number of socio-economic and demographic factors that have been driving the popularity of later-life lending. They say the market has been responding to this growth in demand by providing a wider choice of products with flexible features and more competitive rates.
This has all contributed to lifetime mortgages being seen as a more mainstream solution. It then becomes a virtuous circle because equity release increasingly needs to be considered as an option when brokers and financial planners meet with older clients.
Failure to investigate later-life lending could make it difficult to claim that the client has received the best advice. For non-specialists, establishing trusted partnerships with expert advisers will be the key to ensuring clients’ needs are met and their own regulatory duties are satisfied.
Continuing growth
Mortgage brokers and financial advisers predict that demand for equity release is likely to grow even further in the coming years. A recent survey of 400 intermediaries by Air Group, which encompasses an equity release sourcing system, a mortgage club and the Air Later Life Academy, found 90% of respondents felt there was a clear and growing need for later-life lending, with 85% expecting established demographic factors to keep the market buoyant over the next two to three years.
Equity release exams are pretty basic. We need something better to understand the customers we are dealing with
Knight Frank later-life finance associate David Forsdyke believes, as the market continues to expand and evolve, the need for advisers will only increase.
“First, we are living longer, which means we have got to make our finances last for that much longer,” he explains.
“Second, most property wealth is held by older people. Depending on whose statistics you look at, anything from 50% to 70% of all property wealth is held by the over-60s.
“The third factor is the big shift in pension provision over the past 10 to 15 years. We have seen the security and generosity of final salary pensions slowly disappear and they have been replaced with money purchase schemes.
Those with substantial property wealth want to help the younger generations get on the property ladder
“There is plenty of research to show that, generally, we are not very good at saving into pensions, so there are people heading into retirement with potentially disappointing funds but considerable property wealth. They are going to need to tap in to their property wealth.”
In the high-net-worth market, other factors are pushing equity release up the agenda, says Forsdyke.
“Those with substantial property wealth want to help the younger generations get on the property ladder. There is a desire to pass wealth on in a tax-efficient manner. We are having more conversations with wealth managers and financial planners about the benefits of borrowing money against property.
“By creating a debt against their estate, they are reducing the taxable value of the estate. They are also passing that wealth on much sooner, which means that the younger generations can put that wealth to good use, much earlier.”
Although equity release products have evolved considerably over the past decade, there are still just two main categories: lifetime mortgages and home reversion plans.
There are people heading into retirement with potentially disappointing funds but considerable property wealth
The former are by far the most popular, with the latter making up only a tiny proportion of the market. That is because, with a lifetime mortgage, you retain full ownership of your property, whereas with a home reversion plan you sell part or all of your home, usually at below market value, in exchange for a lump sum.
It is within the lifetime mortgage space that most of the recent innovations have taken place. Flexible options have been added, such as inheritance protection, which allows borrowers to safeguard a specified sum to leave as a legacy for their heirs; and downsizing protection, which prevents them being trapped in a situation where they are blocked from moving to a smaller or more suitable property because of the loan-to-value or the size of their outstanding mortgage balance.
Many plans also offer flexible drawdown options so that borrowers can borrow as much as they need as they go along, paying interest only on the sum they withdraw.
Complex knowledge
With this greater choice of products and features, the job of the equity release adviser has become more complex. For Air Group chief executive Stuart Wilson, it is a question not just of whether brokers are qualified to give equity release advice. He believes much of the knowledge necessary to deliver a high standard of advice is acquired after exams have been passed.
If you are an equity release adviser, you should have a good understanding of the wider market in case there is a better product there
“Equity release exams are Level 3 qualifications, so they are pretty basic. I think that is poor and we need something better to understand the customers we are dealing with.
“Clients never have binary needs. They often have a number of needs that you have to match with the most appropriate product from a selection. As regulation has evolved, this sector has been left by the wayside so what you have now is a dysfunctional, silo-driven process.”
Specialist approach
Wilson believes advisers must be able to consider Rio, equity release and other retirement products side by side. Currently, brokers require only the standard CeMap mortgage qualifications to advise on Rios, but need specific qualifications for equity release, creating a mismatch.
As regulation has evolved, this sector has been left by the wayside so what you have now is a dysfunctional, silo-driven process
The Later Life Lending Network equity release manager Victoria Wilson believes equity release advice requires a specialist approach.
She says: “We don’t want people dabbling in it, so we try to make sure we do not have advisers getting authorised just for the sake of it. Instead, we really try to make it an education piece at every one of our events. We want to make sure all our advisers know that the answer isn’t just a ‘No’ because someone is a bit older. There is always going to be a solution if you look into it a little further.”
We are living longer, which means we have got to make our finances last for that much longer
Access Equity Release and Your Mortgage Decisions director Martin Wade agrees.
“It would be great if you could advise somebody from cradle to grave and you could be an expert in all of those fields, but that is simply not possible.”
But Wade thinks all mortgage advisers need an understanding of the equity release market and the opportunities it provides.
“Even if you don’t know the detail about lenders and the placement of individual cases, you should have a top-down view of what is available. And vice versa: if you are an equity release adviser, you should have a good understanding of the wider market in case there is a better product there.”
However, as demand increases, more advisers could decide to make later-life lending their specialism. That is the view of the Chartered Insurance Institute (CII), one of the two bodies that offer equity release qualifications.
We are having more conversations with wealth managers and financial planners about the benefits of borrowing money against property
CII chief customer officer Gill White says, before Covid, the number of candidates completing the CII’s Certificate in Equity Release was around 750 a year. There was a slight reduction in 2020 and 2021, but numbers are expected to recover to pre-pandemic levels in 2022.
She says: “The impact of Covid-19 on the economy, and the amount of wealth locked in property, mean the number of individuals seeking advice about equity release, and the amount of mortgage advisers requiring our certificate in order to offer them assistance, are only set to grow.”
