Peter Welch is head of sales and distribution at Bridgewater Equity Release
Working for a home reversion provider, my role has two simple key objectives. Firstly to increase the market share of my company’s products and secondly to help grow the equity release market overall. It should come as no surprise then that I spend a lot of my time thinking about some of the barriers to growth for both reversions and the equity release market in general.
When reading the national or trade press or scouring social media, the vast majority of comment makes equity release synonymous with lifetime mortgages only. I’ve given a lot of thought as to why this is, particularly when home reversion plans are powerful financial planning tools that can give customers certainty over the percentage of the property left to their estate, future releases and a hedge against future uncertainty over house prices.
Essentially, reversions are viewed as something of a Cinderella product (before she goes to the ball) and are taken to be not as important as the lifetime mortgage stepsister. It seems that the majority of the adviser community in our profession are quite happy to keep ‘Cinderella’ in the equity release product basement and I believe this to be an unfair approach to take.
Talking to advisers the recurring message is that clients don’t want to give up ownership of their home. This is a view I have total sympathy with. After all, none of us would want to give away a home we’ve not only worked our entire career to pay for, but is also full of cherished memories and is possibly a symbol of our status in the community.
I can only speak for Bridgewater as a provider, but the reality is that any customer taking out a reversion plan is not so much giving up ownership of their home as changing the type of ownership. If we take a look ‘under the bonnet’ of how the plan works it will explain this.
With a reversion the property is independently valued, following which customers purchase a lease for life that gives them the legal right to live in their home until they vacate it, either when they die or they move into long-term care. At this point, any equity remaining in the property is released to the customer’s estate, depending on whether they have not released 100% of their equity up until that point. This lease is registered at the Land Registry in the same way as a leasehold flat or house. After, all any owner of a leasehold property sees it as their ‘home’ and reversions are no different.
Furthermore, anybody who takes the time to compare the terms and conditions of both lifetime mortgages and home reversions will see they contain the same responsibilities for the customer. This means the ‘ownership’ argument is really an emotional one, both for advisers and customers, but one that may be denying customers who want a hedge against the risks associated with longevity and house price inflation, a suitable product solution.
I’d encourage all advisers working with equity release to really get to understand how reversions work, along with the protections offered not only by Safe Home Income Plans guarantees and Treating Customers Fairly, but also property law. Once armed with this information, I’m sure advisers will be much more positive about reversions as a product solution and will be able to reassure customers of the protections involved and help to remove the unnecessary anxiety generated by the issue of property ownership. Maybe that way the reversion Cinderella will go to the ball.