Peter Welch is Head of Sales and Distribution at Bridgewater Equity Release
House prices. There, I’ve said it. For many people in the UK this article has immediately become approximately 100 times more interesting than it might otherwise have been. I say this because the national obsession with house price movements throughout the UK is still a topic that can generate significant levels of debate, conjecture, downright obsession and even denial. Even in what is (at best) a static house price environment in most areas, anyone who owns, is looking to own, or will never own, still seems to want to know what house prices are doing, and rather importantly, what they are likely to do in the future.
Of course, it wasn’t always like this. I can still remember a time when a gathering of two or more people did not always have to include a conversation about the value of one’s house, what it was bought for, and what the expectation will be regarding how much it is likely to sell for.
To me, house prices seemed to move into national obsession mode when they began their seemingly inexorable rise towards the late 2000s. Of course, prices could not rise forever, although some appeared to make a career out of predicting they would; while others went the other route and declared a price crash imminent. National newspapers realised that judicious use of the inter-changeable headlines, ‘House prices rocket’, and, ‘House prices crash’, every three months or so was a good way to increase sales.
Which brings us to the situation we have today, post-Credit Crunch, post-significant falls in house prices, and post-recession (if we’re lucky). House prices are still on the news agenda and the large number of indices which track and document the monthly changes in prices are still of great interest to not just those in and around financial services, but also those in the wider population.
The reasons for that interest have not changed. If you own a house you want to know what its value is, is it more than you paid for it, will you be able to make money if you sell it; if you don’t own but want to, you’re looking at prices and wondering if they continue to fall will you a) be getting a bargain, or b) purchasing something which will quickly be valued at less than you paid for it; and if you’re in, or near, retirement you may be thinking about accessing some of the value you may have in your property in order perhaps to make your standard of living that much better in your ‘golden years’.
So, we know only too well that house prices garner interest, and the equity release market is no different, because advisers should always factor in house price changes, potential moves and their own clients feeling on what might happen to the price of their home.
In this environment we recently put out a press release which argued that a number of advisers were overly bullish when it came to their own house price predictions and how they sometimes used this as a means to recommend a lifetime mortgage product when, in fact, a home reversion may have been more suitable.
Our argument is that talking about 8 or 9% house price rises in the near future is clearly not justifiable when all forecasts and recent evidence suggests we will be lucky to be reaching a 4% rise per year by 2015.
Up until that point, many areas will continue to see house price falls over the next 12-18 months before stability kicks in.
Some advisers – and I would put these in the ‘dabbler’ category – are clearly using their over-bullishness to suggest that a lifetime mortgage, with all its interest rolled up, is still the better option as the value of the property will always outstrip the interest.
However, we know this is not the case particularly for recent lifetime mortgage customers who could currently be seeing the size of their debt rise and the value of their property fall.
This spells trouble for those who might think they can withdraw more equity and could well mean that the ‘no negative equity guarantee’ is needed in far more cases than advisers initially anticipated.
Now, putting all these issues together undoubtedly rubs some in the equity release market up the wrong way. We were fully aware of this – indeed on one social media site our release was deemed to be ‘a load of old rubbish’ by one enlightened individual.
However, other esteemed specialists in the field have supported our viewpoint and urged other advisers to make sure they are not unduly influencing their clients into a lifetime mortgage based on house price forecasts which are unlikely to ever be achievable again.
Unfortunately, and some recent posts on this issue highlight this fact, some advisers seem unwilling or unable to have a discussion about any other product apart from lifetime mortgages.
Indeed, one adviser comment highlighted the skewed view of the sector many still have by saying that his firm advised on ‘both’ equity release and home reversions.
Now last time I looked reversions were one of two equity release products available. Home reversions are equity release products and should be treated as such within the advisory proposition – this comment seemed to suggest that they were not and that is particularly worrying.
Therefore, the house price/equity release debate is a valid one to have, particularly if (as we suspect) some in the market still think it’s 2002 and prices are achieving double-digit growth.
We are a long way from that time and the advice given to customers should reflect this and outline a far more realistic view of house price performance going forward. If it does not, then unsuitable products will continue to be recommended and rather than the risk being placed onto a provider by opting for a reversion, the risk will continue to sit with the customer and/or their estate.
For some, this is a risk not worth taking and advisers should certainly ensure their views do not put the customer in this position.
