I have been reflecting on a recent question posed to me about why the equity-release market is not achieving the growth that has been continuously forecast for it over the past five years. It unfortunately boils down to the fundamental point that consumers just do not understand equity release and are therefore afraid of it and if they are not afraid of it, then they do not know where to go to get appropriate advice.
This is a major obstacle to overcome and if the industry is to make the long predicted step-change in sales, it needs to address this lack of consumer understanding and a perceived fear of the products. Once that is achieved – and I acknowledge it is easier said than done – market forces will take care of the lack of distribution capacity and advisers and their firms will move resources into the sector.
What can be done? When it comes to consumer awareness, I would argue the industry has been shooting itself in the foot in recent times. It has been a bit like selling wedding cakes without any icing – 90 per cent of the product bought is fruit cake but, without the 10 per cent icing, the proposition is not that attractive.
By this I mean that, until now, the industry has been hell-bent on delivering a message to consumers which could be summed up as equity release = lifetime mortgage. However – and it may surprise some of the unenlightened – if you read the FSA money made clear document on rais-ing money from your home, the definition of equity release is simple. It reads: “There are two main types of equity-rel-ease scheme – lifetime mort-gages and home reversions.”
Sadly, though, this message is still not clear to all advisers. When I talk with many of them, I am often shocked by the language used. I regularly hear expressions such as: “I only do equity-release business. I do not do home reversions.” I refer them to the FSA statement above.
Unfortunately, this advisory oversight or, one might sugg-est, ignorance is often upheld by the media. For example, when I read national press articles about equity release, the consumer journalists always warn customers against compound interest and the risk this poses to the family’s inheritance. This is valid for lifetime mortgages but is simply not the case for home reversions. Plus, it is a simple fact that many potential equity-release customers have spent their working lives paying off a mortgage and do not want another one but how often are reversions held up as a viable alternative?
Similarly with compound interest (which is a complex enough subject to explain to a sophisticated consumer, let alone a less informed one), why does the industry feel the need to lead with lifetime mortgages, the one product that is the hardest to explain to a sceptical audience?
Reversions are a much simpler proposition and I am convinced that when presenting messages to the consumer, the industry should be less obsessed with lifetime mortgages and more focused on equity release.
In order to give more consumer reassurance about equity -elease products, I would urge all those respon-sible for PR, advertising, web design and lead generation to take stock, be honest with themselves and think about whether they introduce any product bias into their communications with consumers, however subtle.
By having a more balanced view of both home reversions and lifetime mortgages, I believe more customers will seek advice because, currently, people who want to avoid further debt or roll-up inter- est yet want to guarantee an inheritance for their families will find it difficult to see a solution suitable for them.
If the industry starts focus-ing on customers’ needs, I am convinced the overall equity- release cake will get bigger and lead to increased sales of all products.
Peter Welch is head of sales and distribution at Bridge-water Equity Release