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Could equity release be the key to funding long-term care costs?

Experts are predicting the equity release market could grow by up to 25 per cent this year due to increased demand and regulatory pressures elsewhere.

Figures published by the Equity Release Council last month show total equity release lending hit £1bn last year compared with £922m in 2012.

The market has failed to reach the £1bn mark in the previous five years. The average loan size in the equity release market in 2013 hit £56,917 –
a 15-year high for the sector.

Equity Advice managing partner Stuart Wilson says the return of equity release has been the result of a decline in alternative options for older clients as well as regulatory restrictions.

Wilson says: “The recent surge is down to the simple fact that choices are becoming more limited for older customers wishing to raise capital, plus we have regulatory issues such as the mortgage market review and RDR to contend with, as well as pressures on payday lending and credit card lending, meaning customers are exploring wider avenues.”

Equity Release Council chairman Nigel Waterson says: “An asset-rich generation is increasingly taking positive steps to use their property wealth to enjoy a better standard of living. For some that means clearing debt, while for others it means having more room in their budget to pay for extras or simply cope better with day-to-day costs.

“People are far more confident about property values and equity release has achieved a higher profile in the media. It is still not as mainstream a product as I would like but it is increasingly coming onto people’s checklists and that’s a positive sign.”

Wilson expected more innovative products this year to help boost the equity release market further. 

He says: “The market is becoming more robust, and while I don’t envisage massive net growth, we could perhaps see a 15 per cent increase by year end. The difficulty is the process is highly advice-driven and there are also funding restrictions and other issues. I see rates potentially rising but product innovation acting to balance this.”

But Age Partnership technical manager for equity release Simon Chalk says: “I am more optimistic.
We could see around 25 per cent growth in the market this year, but it would be nice to be wrong by a long shot.”

Waterson adds: “The key to growth will be new entrants. There is talk of Legal & General considering plans to enter the equity release market. It is moves like this that will help us achieve an even better 2014.”

Experts also believe equity release could play a greater role in funding long-term care costs.

Wilson says advisers should educate themselves fully on the care process, to ensure the best possible advice for consumers.

He says: “The industry needs to deliver a more robust integrated advice process, an example being the greater interest in equity release being a possible funding option towards care.

“If the advisers do not understand the care market to begin with, we will not have the joined-up advice proposition the consumer requires.”

Waterson, who has been involved in the discussions around the Government’s Care Bill says: “It is hugely important people take independent advice for such matters.

“I agree that paying for care will become a more popular reason for using equity release.”

But Chalk argues that while the care advice process is a big part of equity release he does not think this should be a main focus. 

Chalk says: “When a client enquires about equity release, it is normally the case that it is for an immediate need – maybe they do not have enough cash or even just want to top up their income through a equity release drawdown plan.

“We need advisers to be aware of the care process but I would not say they need to be experts. Conversations need to be robust, you must ask the questions around care but you often find  the younger end of equity release clients do not put a huge amount of thought into later care requirements.”

“What advisers need to do is employ their planning skills and get the client to think ahead about what their future needs might be. That may well include care, how it will be delivered and what the costs might be.”

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  1. This is not a mainstream product and in my view can only be justified in a tiny number of cases.

    When people realise that they have in effect sold their homes for (at best) a THIRD of it’s value the FOS will have to start working 24/7.

    In the majority of cases this product makes a rip off look reasonable.

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