The Financial Services Consumer Panel (FSCP) has released a thought-provoking report on the mortgage advice process for older borrowers. It shines a light on the need to provide them with options.
The report, entitled ‘Equity release and alternative products: A consumer perspective on experiences and outcomes’, gives detailed analysis of the current advice situation.
This pigeonholing of the demographic is not treating customers fairly
The aim of the report was to investigate “the way people choose and buy equity release products to meet their later-life needs”. The sample size was small, with 45 customers surveyed, but in-depth interviews were carried out that revealed similar outcomes in many cases.
A prevalent misconception in the UK is that older people can’t get a mainstream mortgage and equity release is their only option. Equity release is the right product for borrowers with specific circumstances but it is not suitable for everyone.
It’s not just the general public who are unaware of the range of mortgage products available for older people — there are brokers who don’t know either. Some appointed representatives of networks simply pass older customers to later-life lending advisers who specialise in equity release. This pigeonholing of the demographic is not treating customers fairly as they are not being informed of all their options.
The FSCP research found that the participants surveyed had not fully understood all the details of the equity release product when they bought it
FSCP chair Wanda Goldwag wrote in her opening commentary in the report: “Equity release rates are the most competitive and cheapest they’ve been in years, but equity release itself can be a relatively expensive and potentially high-risk way to raise money, requiring later-life consumers to make a complex decision with long-lasting implications.”
The new Consumer Duty consultation by the Financial Conduct Authority proposes that the financial services industry provide “products and services that are fit for purpose — with terms and features that match the needs of the consumers they are for”.
This will apply particularly to older borrowers. We have an ageing population, with people working longer and into retirement. For the first time since records began, more than half of new mortgages are due to end after the homeowner turns 65, and lending to over-55s has grown, according to UK Finance. The average age of a borrower when they take out a mortgage with LiveMore is 69 for women and 66 for men.
The chief suggestion was to review alternative options before committing to equity release and carry out comprehensive research
The report highlights that consumers need better outcomes and they should be able to consider a range of mortgage options, not just equity release. It also states advisers should talk to customers about choosing a different product and/or provider than they initially considered, if it is more appropriate. The report found many people just accepted equity release as their only option, so approached advisers with this in mind.
The minimum age to qualify for equity release is 55, but if the product is the only option presented to customers then the Consumer Duty is not being met. By taking out equity release at age 55, a person could live another 40 years or more, resulting in their final loan amount being very large due to the compounding interest over a long period.
Mortgages and equity release can be complex for people to understand. The FSCP research found that the participants surveyed had not fully understood all the details of the equity release product when they bought it, especially the financial impact of compound interest. They had also tended to ask few questions and had not carried out enough research.
The participants were asked what advice they would give to older borrowers who wanted to access equity in their property.
The chief suggestion was to review alternative options before committing to equity release and carry out comprehensive research to thoroughly understand what they were doing.
A prevalent misconception in the UK is that older people can’t get a mainstream mortgage and equity release is their only option
Potential customers should discuss their options with their family and understand the consequences for when the loan needed to be repaid, such as the impact on inheritance. They should speak to an independent financial adviser and review the implications of the product, both at the time and in the future.
Finally, if people wanted to take out equity release, they should do so later in life, not mid-life.
Alison Pallet is managing director of sales at LiveMore
This article featured in the July edition of MS.
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