Despite, or perhaps because of the column inches devoted to conflicting reports on the relevance and value of equity release in the national press recently, IFAs seem to be getting more and more enquiries on equity release – in all its guises – from the public. Where is the business coming from and when are advisers comfortable in rec- ommending equity-release products?
Chadborn Baker & Kearle financial adviser Peter Wright says his firm does some equity-release business but it is not something it publicises. Most of the firm’s client base comes from professional recommendation from accountants and solicitors.
Wright says it is important to balance the risk of the product with the life needs of the client and that often equity release turns out not to be the right product for a client.
He says: “We find that when we talk it through with the client, the risk factor and the respective rewards do not seem to be what the client actually needs. The perception with some consumers is that it is a wonderful idea but unless you fit a very specific set of conditions it will usually be better to take some other form of action.”
Bath Financial Planning associate director Andrew Cook says there is still a negative perception over equity release that comes from the “dark days” of the 1980s. She says: “They are still held in a slightly dim light but once it is explained to the client that you are not tied for life and can usually break the contract at any time then their usefulness can be seen.”
Wright says out of five people who ask about after release, only around two end up using it. He adds that CBK is not looking to expand its business in this area and is only reacting to the demands of its clients. “If clients really want the product then we will provide it but we make sure they are careful and know exactly what they are doing,” he says.
For Wright, it is more of a last course of action for his clients. He says downsizing the family home or using other forms of income are often better options.
However, the product does have its uses as an inheritance tax planning tool for higher-net-worth clients. Equity release can work well in limiting IHT liabilities but this is more becoming more constrained with changes in IHT law.
Wright says: “It suits HNW clients better for IHT purposes and we are seeing more and more enquiries at this end of the marketplace. However, the most enquiries come from the lower end of the marketplace where its usefulness is not as great.”
Cook believes equity release is useful for turning property into a discounted gift, which has benefits across the board for HNW clients but he also thinks that lower-net-worth clients can benefit from using equity release in this way.
Additionally, he believes that in a few cases the product is very useful for releasing funds for emergency care such as medical operations.
Wright says problems occur when the client’s family is not involved in the advice process or when clients aged 50 to 65 look at equity release as a solution to their income needs.
Up until age 65, most advisers agree product providers are not offering clients enough money relative to the amount of equity they are releasing from their properties. This often does not make the product viable until a client is in their 70s.
But the range of products is growing for IFAs although Wright says the lack of research tools available to trawl through equity release offerings is a problem when trying to give best advice.
He says: “The full range both of roll-up and home-reversion products are hard to find because, unlike mortgage products, to get the right deal you need to trawl separately through each provider’s offerings rather than use the one research tool.”
Cook agrees that getting to the bottom of particular products is relatively difficult. “This is important because the last thing that the client wants is nasty surprises in a product like this,” he says.
But as there are relatively few providers presently in the equity-release market, he says it is not too much effort to research the whole of the market.
Cook says Mortgage Express, Northern Rock and Prudential tend to get the bulk of Bath Financial Planning’s business because they seem to have the least complicated products. He says: “Rates are still much of a muchness in this marketplace and there is no lengthy small print on these providers’ products. They are clear-cut, with no negative-equity traps.”
He says Mortgage Express particularly appeals to clients because it lets them release the highest amount of equity.
Wright says CBK also puts business through Norwich Union and Northern Rock but it also favours the likes of Scottish Widows, Home and Capital and GE Life. “At the moment, the providers we use are very similar in terms of rates. What we particularly look for is redemption penalties and charges,” he says.
Cook says a lot more product providers will come to the market as demand increases due to poor pension provision across the UK. He says: “Unfortunately, the days of passing on your assets to your next of kin are quickly coming to an end for the vast majority of the population. People are realising that they now have to live for now and equity release is firmly becoming part of that new way of life.”