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Release of anger

Which? caused a storm in the equity release world last week when it released a report recommending that equity release products should only be used as a last resort.

Commentators have reacted angrily, with Safe Home Income Plans director general Andrea Rozario branding this view “outdated”.

The report, entitled, Care Options in Retirement, says that equity release schemes can be very expensive, inflexible and leave people with little or no equity in their home.

Philip Spiers, one of the report’s co-authors, says: “Equity release might seem like the solution for any pensioners struggling to make ends meet this winter. These schemes provide income while enabling you to stay in your own home. However, if your circumstances change, you might not have enough money remaining to fund alternative accommodation and money received through equity release may seriously alter the amount of benefits you are able to collect.

“Anyone considering equity release should do so cautiously and only after exhausting other options. In all cases, independent, professional advice should always be sought.”

But Key Retirement Solutions business development director Dean Mirfin says the report is “pretty barmy” and says the only area he agrees with is the need to get specialist advice.

He says: “To say equity release should be their last resort is ridiculous. A lot of our customers would consider downsizing as a last resort. More than half of the people we have appointments with end up not taking the decision to go through with equity release because we discuss all of their alternatives so we would never recommend it to someone for whom it was not suitable.”

Mirfin says other options such as taking out a mainstream mortgage, borr- owing money from family or dipping into other income streams are all discussed in detail along with equity release. He says: “We would be pretty crazy to hold a view that it is suitable for everyone. This really frustrates us because it could put people off coming to see advisers altogether to discuss their options.”

Mirfin takes particular issue with the report’s comments on the impact that equity release can have on benefits. Which? says equity release can affect the amount of means-tested benefits a person is entitled to but Mirfin says there are many instances where it does not affect the benefits and this would be discussed before a customer takes out a plan.

He says: “The report was totally unbalanced about the affect on benefits. You are allowed up to 6,000 of savings anyway before it has an impact. There is also an assessed income period of five years and quite legitimately you don’t have to notify them if you are in that five-year period and take out a plan.”

CBK mortgage specialist Peter Wright also says that equity release can be a very good option for some people. But he says this is heavily dependent on the client being given the right advice and information.

He was recently approached by a client who wanted to discuss a home reversion plan they had been sold by a tied adviser in 2001.

Wright says the clients did not understand that the product they were drawing income from meant that they now only owned 30 per cent of their property.

“The look of absolute shock on their faces when I told them that they only owned a small amount of their property and that there was no way of reversing this was distressing to see. They had absolutely no concept of how the plan worked.”

Wright says he has had clients coming to him about equity release plans which have been sold to them by tied advisers and which they do not really understand.

“The plan often is not suitable for them with hindsight and so I agree with Which? that it is important other options are discussed before equity release. But I do not agree that it is a last resort. It can be the right option for many people. The important thing in my opinion is to get independent advice.”

The problems with getting the correct advice are highlighted by a recent publication from the Financial Ombudsman Service which contained a selection of case studies of complaints relating to equity release schemes.

Among the cases highlighted were several that were caused by inappropriate or incomplete advice, with many of the issues arising from a lack of independent advice taken by the borrowers.

One such case refers to a Mrs B who was advised by the lender to take out a home reversion plan to carry out essential repairs to her house.

On her death, her sister, complained to the firm because she thought the terms of the plan were onerous (the firm ended up owning 90 per cent of the deceased’s property) and thought the firm should have ensured that Mrs B obtained independent advice and consulted her family before agreeing to take the plan.

In this case, the adjudicator decided that the firm should pay the woman’s estate the full proceeds from the sale of the house plus the cost of the original legal fees, as the woman was overly-reliant on the lender’s advice and alternative ways of providing funding for the repairs was not fully investigated.

Bridgewater Equity Release managing director Peter Couch says that in theory there should be no different between the advice customers get when they go to tied advisers because they are still required to give best advice under FSA rules.

He says customers know before they walk into a prov-ider’s offices that their advi-sers can only sell that companies’ products.

“Some people may trust a provider more than an independent financial adviser that they have never heard of and generally, big providers would not put their reputation at risk by recommending an unsuitable product. So I don’t think there is such a concern on this front.”

In addition, Ship requires all its members to deal with customers through an adviser and Couch says this has proved a successful measure.

But he says: “There is a real danger that Which? may have frightened people off. They were too blunt and judgemental. They make it sound like you should avoid equity release at all costs.”

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