Equity release is still seen by consumers and many advisers as a product of last resort or a low-income solution akin to sub-prime mortgage lending or sale and rentback. But while the industry does not deny that it is a useful tool to solve income problems at retirement, many experts argue that advisers are forgetting that it can equally be used as part of high-net-worth retirement advice.
Safe Homes Income Plans director general Andrea Rozario says: “The more your property is worth, the more it should be looked at in the whole retirement planning process.”
Industry experts predict that as clients’ property becomes more of a central part of the retirement advice process, more wealthy clients will be able to benefit from using their equity as an asset.
Hodge Lifetime managing director Jon King says: “Retired people are now much more likely to use equity release for strategic objectives than ever before and there is a whole range of ways that this can fit.”
King says equity release can be used by advisers to help when it comes to inheritance tax planning. It can be used to help family members or can even be used as a bridging loan for those who take early retirement and cannot access their pension for several years.
He says: “Advisers should consider the wealth of the property in a much more holistic way. It should form part ofyour retirement strategy, even strategies for those clients with a lot of money.”
He says one problem is that high-net-worth advisers or wealth managers are simply not asking questions about property when it comes to wealthy people’s retirement planning. Rozario says this is “incredibly irresponsible” as the property is invariably a person’s biggest asset.
Key Retirement Solutions group director Dean Mirfin says that because many clients have a negative view of equity release, it is up to advisers to point out what it can achieve for them. He says: “A lot of clients are not going to ask about it because they have a negative perception of it as a low-income product. It is the adviser that has to convince them otherwise but right now not enough advisers are talking about equity release and how to use their property.”
Rozario admits the industry has not done enough to move away from the stereotype of a financial product for poor, helpless elderly people.
She says: “Traditionally, equity release has been framed round the vulnerable consumer and its here that we think changes have to be made.
The way the FSA looks at equity release, the way Which? looks at equity release, and I guess the way the industry looks at it too, everyone is guilty of pigeonholing customers.”
But Mirfin says the perception of equity release and the reality are already quite different. “The perception right now is completely wrong because if you look at all the evidence,it is all about lifestyle. Our research shows the majority of our customers use equity release to improve their home. Whether you are in a £50,000 property or a £5m property the lifestyle usually comes with it,” he says.
Mirfin says it is the job of the adviser to dispel this myth. “If the client says ’oh, isn’t equity release for people on low income?’ It is the adviser who is best placed to set them right. It is not about product, it is about what it does and while what equity release can achieve for a high-net-worth client would be very different to a struggling homeowner, at the end of the day, it is about unlocking value in your property.”
King is confident that this is already happening and says Hodge’s figures suggest that a lot more advisers are happy to mention equity release during conversations. “Ten years ago, they would not have mentioned it as they were worried that the client’s reaction would be negative.”
Of course, there are risks and Mirfin says there are several things that advisers and clients have to be awareof before using equity release as a wealth management tool.
He says: “If you are taking money out of an asset and investing it, you will fall foul of the FSA’s ’borrowing to invest’ rule. From the FSA’s early investigations into using equity release to avoid IHT, it found that in most cases it was debatable whether the client’s estate was better off but the adviser was always better off. It is a hugely sticky area.”
But Mirfin says there is a lot of potential in broaching the possibility of equity release to richer clients. “It’s about doing things you can’t afford and giving you the capability of doing things you want to do. That does not change if you live in a big house. Peoples’ wants and desires don’t change because of wealth, all that changes is scale.”
King says some providers are already covertly chasing HNW business with favourable rates for bigger loans and Rozario thinks that if more advisers of HNW clients were talking about equity release, it could entice more providers into the sector.
She says: “New Ship members may possibly come into the market aiming at the higher end. A lot of people are looking at how equity release can dev-elop in the coming years.”