KRS highlights overpay
After reviewing the latest figures (Q1 2006) from the equity release industry body SHIP, KRS is concerned that there is a huge disparity between the types of product being taken by customers who are advised by product providers, compared to those who take independent advice.
Specifically, only 2 per cent of all plans sold directly by providers in the quarter were drawdown mortgages compared to 36 per cent of plans sold by intermediaries. Drawdown mortgages allow consumers to agree a total sum to be borrowed and then take it in stages over a specified period – as and when it is needed, which can significantly reduce the cost of borrowing.
KRS has calculated that clients who would have been advised by an IFA to take out a drawdown mortgage but do not do so as they have chosen to deal directly with a provider pay almost £5 million extra in interest (£5,363 per plan) in the first year. With accumulated costs, this increases to a staggering £27 million, or £30,231 per plan over a five-year period.
Dean Mirfin, business development director at Key Retirement Solutions, commented: “We were very concerned when the SHIP figures revealed that the majority of customers who deal directly with providers are not being advised to use drawdown mortgages. While these products are not right for everyone, they can offer the potential for significant savings over the long term in the right circumstances. In part, the reason for this disparity is that most providers advising customers directly do not offer flexible drawdown products.
“The considerable gap between the number of drawdown mortgages sold direct to customers by providers and those sold via IFAs is a huge worry. This clearly illustrates the need for a consumer to obtain truly independent financial advice before they make the decision to purchase such a product.
“We call on the industry to take notice of this discrepancy and actively seek to ensure that all consumers are able to access the entire suite of equity release products before purchasing the plan that is best for them. Equity release has had a poor image in the past and unless we do our best to ensure all customers are treated fairly, this is something we may be forced to face again.”