The Equity Release Council is celebrating 30 years of setting standards. We asked three consumer advocates, speaking at the Equity Release Summit next week, about the progress so far and the challenges yet to come.
There’s a feeling that the equity release industry is approaching its latest breakthrough moment. That’s not unjustified, the market is six times larger than it was a decade ago and there has been a seismic shift in consumer attitudes.
Few would argue that the Council’s standards, first set by its predecessor Safe Home Income Plans, have played a central role in these developments. The standards not only predated statutory regulation by 13 years; today they still represent the highest levels of consumer protection there are in the later life lending market.
The Council is proud of its achievements and that of its members and makes no apologies for that, but the need and desire for improvement is ever-present. Like the Summit itself, but on a much smaller scale, this article seeks to challenge the sector, stimulating debate and innovation, to ensure it remains fit for purpose for the next 30 years.
“While the industry often fixates on its unhappy past, the good news is that most consumers are blissfully unaware of that and, if an equity release product can help them live a better retirement, they are incredibly grateful,” says James Daley and managing director of consumer ratings agency Fairer Finance and, Daily Telegraph columnist.
“The Council has played a key part in building trust in the sector and keeping the industry on its toes. It does not let the sector forget its past and reminds it of the importance of continuing to improve products.”
James is one of three consumer advocates speaking at the May 12 Summit which takes place in Church House, Westminster. Another is consumer insight specialist Sarah Christie, of Truth Consulting, who has spent over 20 years examining consumers’ relationships with financial solutions.
“Attitudes towards the product and customer type are changing,” she said. “However, there is still a perception gap between those who had been on the equity release journey and those who haven’t.
“For the former, attitudes have changed. The experience of equity release turns out to be a pleasant surprise and misconceptions and concerns are almost always allayed.
“But the reputational overhang can mean equity release users feel nervous of sharing these positive experiences for fear of being seen as lacking ‘financial smarts’.
“It means equity release can remain a ‘well-kept secret’ and perceptions among some quarters of the general public lag behind.”
“However, there is a shifting profile, towards a younger and more affluent demographic, who actively chose the product in order to maximise their home as an asset, which is worthy of note.”
Equity release’s appeal among wealthier customers isn’t just because of rising house prices. This is demonstrated by the fact that the average value of the homes subject to equity release plans has been rising faster than house price inflation.
However, the storm clouds are threatening to crowd out conversations of preference over need. Inflation and a cost of living crisis look set to create significant economic upheaval, increasing financial challenges stress and making the need to review their finances and consider equity release more pressing for many.
UK Small Business Commissioner Liz Barclay is conscious of the changing landscape. The former BBC Radio 4 consumer journalist, who now sits as an independent voice for consumers on the Council’s standard board said:
She said: “Some consumers who are struggling to make ends meet in the current economic climate are likely to be people who have never been in financial difficulty before, and never been in vulnerable circumstances before.
“Small business-people, who always assumed their business would be their pension, are now facing the prospect of losing those businesses and may look to equity release to keep them afloat or to provide the missing pension.
“Who knows how they will feel about that decision 25 years down the line? They may remember the decision-making process differently from the process reflected by the adviser’s notes.
“We have to work harder at seeing the advice and sales processes through the lens of the consumer who may be struggling to cope with previously unknown circumstances. We can’t afford to trash our hugely improved reputation again, so we need to keep the standards high and rising.”
For James, gilt-linked early repayment charges are the elephant in the room. Like James, some find them controversial while others say they have their place among products that were always designed to be long-term commitments in the first place. James also believes the incoming Consumer Duty is going to place the sector under more scrutiny than ever. This FCA initiative is designed to ensure consumers understand all aspects of the products they buy.
“As well as having to prove they are offering good outcomes to their customers, the Consumer Duty also forces the issue of complex communication, placing a new responsibility on firms to communicate in a way customers can understand,” he said.
Mortgages are complicated financial products at the best of times and equity release arguably more so. Contracts can be lengthy and written in technical language. “That will have to change,” James said.
Liz echoes the call for clarity. “Sometimes words convey less to the receiver than the sender expects or assumes,” she said. “The meaning of the words ‘equity release’ themselves aren’t immediately obvious to anyone outside the sector. We need to use consumer-orientated, ordinary language (COOL) and be consistent across the sector. If some firms explain things differently from others, there’s another source of confusion. We need to take a long look at the languages we use and agree a consumer-orientated lexicon.”
Nobody in the equity release industry would argue the product is perfect or suitable for everyone. And while it is right that the sector is not left to mark its own homework, it should not lose sight of its successes. Last year the largest known survey of equity release customers found some 90% would recommend equity release to family or friends and the most recent Financial Ombudsman Service data shows the sector experiences low numbers of upheld complaints when compared with mainstream mortgages.
James said: “The industry just needs to keep focused on delivering great quality products and even-handed advice, including being ready to tell people when downsizing or a mortgage may be a better option for them. As long as the sector can continue to do that, it has a bright future.”
- The views of contributors are not necessarily those of the Council.
