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Priority planning

Dean Mirfin Business development director, Key Retirement Solutions.

In beginning to analyse the core issues facing IFAs and brokers in the equity-release market, the place to begin must be in ensuring that regulation requirements are being adhered to. I will not delve too deeply into the regulations here other than to look at a number of the core issues specific to lifetime mortgage requirements.

These requirements are concerned first with ensuring that clients priorities are fully explored and second that alternative opt- ions are considered such as grants, loans and home reversions.

The third consideration is that unless there are other overriding priorities, if a lifetime mortgage is being recommended, it should be the lowest-cost option from those available. The other considerable challenge is to consider the effects on their entitlement to means-tes- ted benefits and taxation.

We can fulfil these requirements by ensuring we have the necessary support systems and knowledge.

This is at the heart of the process. Using a fact-find for this market place that is, in essence, a cover all ages fact-find is fraught with danger. Developing the appropriate tool for identifying the clients needs and priorities needs to be done alongside the MCOB rules. It cannot be an after-thought.

It may come as a surprise to many how those who have released equity have used the funds in the past. This is useful in designing a fact-finding approach as the questions need to be sympathetic to the demands and needs of this client base. Our findings show there is rarely a single need for releasing equity. The graph on this page shows the most popular uses. The percentages total over 100 per cent. This is because of the multiple uses that many retirees have for the funds.

Taking account of potential uses and priorities should help the development of a comprehensive fact-find which provides sufficient detail to consider the range of options available.

Having developed the appropriate tool for gathering our information, the next stage is carrying out sufficient research. It is here there is considerable space for error. There are a number of reasons for this.

The first and most challenging is to find out who the providers are and to know what they offer. When considering lifetime mortgages or home reversions, the problem still is finding this information in one place.

The most comprehensive place to go online now is The Exchange. Its equ- ity-release trading plat- form now features the majority of lifetime mortgage providers. This must not be relied upon alone as the providers which do not feature must still be researched.

The underlying challenge is in being motivated enough to carry out the levels of research required. The reality is that the amount of research and knowledge required is to the same level if you are advising one cli- ent or 100.

Mistakes will prove costly. If we look, for example, at selecting a lifetime mortgage, we must carefully identify the basis on which interest is being applied. Consider the following and ask yourself, which is the lowest cost? 6.74 per cent or 6.75 per cent. You would be forgiven for thinking 6.74 per cent. However, when you look deeper you find that the rate of 6.74 per cent is compounded on a monthly basis. This equates to an actual annualised rate of 6.95 per cent.

Ensuring that you have considered all providers is essential. The difference between the lowest and the highest rate from a Ship member over 20 years on a loan of 50,000 is alm- ost 200,000 in addit- ional interest.

An understanding of the implications of releasing money to increase either capital or income is essential. This is also because in some scenarios the eff- ect may not be negative. In many cases, there is no effect. If you cannot work out the effect on eligibility, then you are required to refer the client to relevant appropriate specialist advice such as the Department for Work and Pensions.

Ensuring a compliant environment will not only protect your clients and yourselves it will also safeguard the growth and sec-urity which is developing in this market.

Dos and Don’ts

Do study carefully the MCOB requirements.
Do ensure that your research can be, and is, thorough. If not, refer the business to someone who can.
Do ensure a structured approach to dealing with issues of taxation and benefits.

Don’t use a standard fact-finding approach.
Don’t underestimate the demands of this market for thorough advice.
Don’t just limit your advice to lifetime mortgages, remember that home reversions must be considered as an alternative.


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Lifetime’s experience

The FSA’s regulations have undoubtedly been a major burden on those operating in the lifetime mortgage sector. This is endorsed by many product providers as well as our own experience.


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