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A sense of release

It is up to providers and journalists to tell the public how lifetime loans work

The recent survey by Key Retirement Solutions of consumers’ attitudes to equity-release schemes highlights a serious lack of communication in the lifetime mortgage market, which is clearly preventing large numbers of elderly homeowners from taking advantage of these very useful products.

One of the big disappointments for both intermediaries advising on these products and for the product providers is the low strike rate. Safe Home Income Schemes chairman Jon King reckons that for every 20 individuals who enquire about home reversions or lifetime mortgages, only one eventually goes ahead.

The problem is twofold. Elderly homeowners, their solicitors and families are probably basing their opinion of equity-release schemes on the high-profile debacle involving mortgage schemes offered in the Eighties. Many of these resulted in homeowners being left with negative equity and facing eviction. On top of this, there is a shortage of good qualified advisers. Since May, it has been possible for intermed-iaries to get a specialist lifetime mortgage qualification and there are 1,500 signed up to take the Institute of Financial Services certificate in lifetime mortgages. The Chartered Insurance Institute has another 1,084 who are already qualified out of 1,178 who sat the CII’s exam.

Long term, the problem of a shortage of good qualified advisers will solve itself as IFAs realise that demand for these products is high and rising and an increasing number of intermediaries acquire relevant qualifications. The serious players in this market are already ensuring their consultants sit the exams.

“All our advisers are qualified,” confirms Dean Mirfin at Key Retirement Solutions. But the long-term problem remains – how to educate vulnerable elderly people on the merits of these schemes in the right circumstances. Come to that, how do you educate the solicitors who advise them on the legal aspects, not to mention family members who see only the possibility of their inheritance disapp-earing into the maw of a lender or home reversion company?

Lawyers and family members are a powerful influence in this market. The presence of high-street names helps. The total value of new equity-release schemes signed up during the third quarter of 2005 was 293.6m a 12.5 per cent increase on the second quarter which stood at 260.9m. Of this, home reversions showed the biggest increase from 10.6m in the second quarter of 2005 to 17.3m for the third quarter, according to Ship.

Another factor in the revival of home reversions has to be the perception that you are not giving much away to the home reversion company in the current low house price inflation era. But fear of negative equity and being turned out of their homes is not easily dispelled.

The latest survey from Key Retirement Solutions shows that more than half of UK consumers (56 per cent) believe equity release is risky, with 61 per cent believing that they could face negative equity. Some 45 per cent believe they could lose their home as a result while 34 per cent believe that the products are too complicated.

These are serious misconceptions – particularly now that the vast majority of lifetime mortgage lenders offer a “no negative equity” guarantee. Some of this fear and ignorance can be put down to the providers and intermediaries not promoting the schemes.

But journalists who prefer a good scaremongering headline rather than accurate and helpful information have a lot to answer for. Both home reversions and lifetime mortgages are useful products in the right circumstances and the market is evolving to provide increasingly consumer friendly products.

The latest schemes are more flexible than those that require the homeowner takes a big lump sum at the outset and interest rates have come down to under 6 per cent, making these products much more attractive.

With most of us looking forward to a retirement with inadequate income, lifetime mortgages are a useful option for millions of elderly homeowners. It is up to providers and journalists to ensure that everyone understands how they work and what they offer.

Money Marketing50 Poland Street, London W1F 7AX


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