The equity-release sector owes a debt of gratitude to a particular trade body for ensuring our survival over the past 20 years. Cast one’s mind back to the late 80s and early 90s when everything went wrong and it seems unim-aginable that we could exist today without the tremendous will and hard work of those few pioneers who started Safe Home Income Plans.
The acronym Ship may no longer be relevant (since the demise of income plans) but the standards introduced through Ship’s endeavours, to an industry on its knees at the time, have stood both the test and passing of time.
Equity-release products and advice are more tightly regulated than most other areas within financial services, with much of this down to self-policing rather than the efforts of the regulator. Lest we allow ourselves to become complacent and self-congratulatory, it is worth reminding ourselves of what went wrong over two decades ago and be aware of the threats that lurk in our midst.
You will be familiar with Sod’s Law what can go wrong will. Putting it succinctly, Sod had an absolute bonanza with the equity-release market uncapped variable interest rates soared to double digits, property prices collapsed, the stockmarket followed suit, leaving thousands of homeowners handing keys over to lenders as negative equity clauses were aggressively pursued, not to mention a good few solicitors and advisers too.
Shocking indeed and surely the perfect scenario to sound the death knell for one of the most worthy and enabling financial solutions. Yet equity release survived, thanks to the formation of Ship and its standard setting for providers seeking membership, enshrined today in guarantees:
1: To allow customers to remain in their property for life provided the property remains their main residence.
2: To provide customers with fair, simple and complete presentations of their plans. This means that the benefits and limitations of the product together with any obligations on the part of the customer are clearly set out in their literature. It should include all costs that the customer has to bear in setting up the plan as well as the tax implications, their position on moving house and the effects of changes in house values on their loan.
3: The right to move their plan to another suitable property without any financial penalty.
4: The right for the customer to choose an independent solicitor of their own choice to conduct their legal work. The firm must provide the solicitor with full details of the benefits their client will receive prior to the completion of the plan. The solicitor only signs a certificate once he or she is satisfied that their client fully understands the risks and benefits of the plan.
5: The Ship certificate signed by the solicitor is there to ensure clients are aware of the terms and implications of the plan, including the impact of equity release on their estate.
6: All Ship plans carry a no negative equity guarantee. This means customers will never owe more than the value of their home and no debt will ever be left to the estate.
Such assurances are essential, none more so than security of tenure afforded by the right to remain in the home for life or until permanent move into care. Knowing that they can open the curtains on their own corner of the world every morning, is incredibly comforting to many people.
So, products improved dramatically since the troubled days, later followed by advice standards when the FSA imposed themselves upon us in 2004, demanding specific qualiChalk: ’Equity-release products and advice are more tightly regulated than most other areas within financial services, with much of this down to self-policing rather than the efforts of the regulator’
fications, processes and permissions. The “dabblers” have all but gone away, leaving a closeknit bunch of true specialists who do nothing or almost nothing but equity release.
Yet our hard-won respect from reacquainted friends such as the public media and consumer protection groups faces threats, as others seek to circumvent the rules, if not in law, then certainly in spirit. First we had Sarbs sale and rent back which seemed to offer a roof over the head of the working age homeowner facing inevitable eviction for falling deeply behind with mortgage payments. Forego ownership in return for a large cash sum, wiping the tarnished credit slate clean and swapping mortgage payments for rent. Simple enough it seemed until we read horror stories of unscrupulous landlords turning folk out into the street, flogging the home for distastefully large profits.
Owing to concerted pressure from those of us in the job of distributing bona fide equity release arrangements, the regulator took charge of Sarbs, setting minimum tenancy periods of five years, cooling-off periods, independent valuations and the like. Thus only a handful of providers exist today.
Having seen off that threat (by welcoming Sarbs into the fold), things went quiet for a while until a couple of those too-good-to-be-true plans reared up. Plans promising 5 per cent income each year for up to 10 years, taking a charge over the home at no risk to the homeowner (unless the anonymous “A-rated” insurer standing behind it went for a burton), then the charge released and off you go. A call to whistleblower@FSA and no such plan has got off the shelf, so far.
Releasing equity from the home has become respectable again but we must continue with our vigilance and self-policing to avoid the past revisiting us.