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Candles in the wind

Unfortunately, I am old enough to remember the miners’s strikes and the three-day weeks of the 1970s. I recall, as children, that when the power went off we would sit round my mum’s gas oven in the dark to keep warm. Candles were in short supply in those days and some local
shops even rationed them.

When I read the results of the recent Ship survey of its members, it got me thinking back to those times and, as a reversion provider, I am feeling a little like the owner of a hardware store when power cuts are announced. Members of Ship forecast a challenging year ahead with business remaining at 2009 levels. I would agree with this but would add that I believe the business mix will be very different at the end of 2010.

With that in mind, as that home-reversion hardware store owner, I have stocked up on candles for the expectant rush of business and am even preparing myself to ration the number of candles I sell each customer. But what is puzzling is I am only seeing my regular customers and I am not anywhere near being sold out, even though I know the demand is there.

Why is this the case? Well,we can all list the lifetime mortgage providers who have left the market over the last 12 months. Equally, the demand for equity release is rapidly shifting with an increase in debt repayment, which I also anticipate to increase particularly if we get the predicted rise in interest rates.

My challenge for advisers is to always be positive about reversions even if they do not intend to recommend one

Consumers are also becoming more conservative, wanti ng products with inherent guarantees. And the gap between the maximum LTVs for lifetime mortgages and the amount released through a reversion has widened significantly over the last 12 months.

All these three factors point to an increase in the demand for home reversions. So again, why, metaphorically, am I not sold out of candles yet?

Well, historically, many advisers have been a little frightened of home reversions. When I say frightened, I really mean they have been sceptical about whether they are good value for money.

In essence, they have been unclear of the real benefits of these schemes and unable to reassure retired customers that a product which involves transferring ownership of their housing asset does not mean giving up their home.

My challenge for advisers is to always be positive about reversions even if they do not intend to recommend one to a customer. Every adviser
I speak to talks about the over – all negative attitude towards equity release, both from the media and consumers. Yet, with customers, some
advisers can paint a bleak picture (either consciously or unconsciously) of one of the only two products available to them. This can’t be a good
message to the consumer.

Home reversions are not right for all customers but increasingly should have an appeal that is more widespread.

My advice for advisers who are serious about equity release is to check that their product knowledge about reversion is current. Also take a hard look at the way both products are explained to the customer. Is there any danger of unconsciously influencing the customer in one direction?

If so, they should think about how they could change their process to be more objective. If equity-release advisers think strategically, then there
is a scenario where funding for lifetime mortgages is effectively rationed and funding for home reversion is far more freely available.

So if the lights go out, make sure you are stocked up on candles and you have a box of matches.

Peter Welch is head of sales and distribution at Bridgewater Equity Release


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