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Defaqto warns lenders over actuarial calculations

Providers are risking significant loss on lifetime mortgage products if their actuarial research is inaccurate, warns financial research company Defaqto.

The firm’s equity-release report warns lenders offering guarantees against negative equity that they need to be certain their actuarial calculations and house price projections are robust.

Head of banking David Black warns lenders not to rush into this niche market and to understand that the product is a long-term investment and commitment and not a get-rich-quick product. Sales costs are high as customers require more advice and families need to be consulted on transactions, he warns.

Black says: “If the actuar-ial tables used are incorrect and house price inflation is lim- ited or even negative, the risks to the lender for a large part of their equity-release portfolio are potentially substantial. It is essential that providers to understand the implications of their actuarial calculations.”

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