Claire Barker is managing director of Equilaw
As the rising tide of coronavirus cases continues to impact on social and economic conditions around the world, a climate of uncertainty has taken root at the heart of public life.
Most events of global significance can be measured in terms of a specific root cause or combination of factors, invariably political or economic. Yet COVID-19 defies conventional categorisation. It can only be defined in terms of its unpredictability, singularity and potential for future damage – a Black Swan event, as many commentators have described it.
Previous pandemics have demonstrated an almost limitless capacity for economic and social upheaval, with recessions or downturns proving a near-certainty. However, careful analysis of these events can also help policymakers to identify measures needed to minimise long-term economic damage and to protect population health – a sort of warning from history.
The last pandemic of truly global proportions, and the event closest to mirroring current circumstances, was the Spanish Flu pandemic of 1918-19. This accounted for at least 20 million fatalities over an 18-month period, as well as catastrophic declines in manufacturing, consumer spending and business activity.
This led to significant financial reverses around the world, with a 6% decrease in UK GDP, and comparable difficulties in the US.
However, recent research has established that US cities which implemented stringent social distancing measures at an early stage experienced far lower mortality rates and far stronger economic performances once the pandemic subsided.
Analysis of post-1919 economic conditions has also suggested that any future downturn is likely to be short-lived (representing a sharp V as opposed to an extended U). Economists predict a brief, though undoubtedly severe, recession in the short-term and the possibility of positive growth emerging in the last quarter of the year, depending on containment and quarantine, financial stimulus from the government, and low or even negative interest rates to support spending measures. So, the outlook may not be as bleak as some would have us believe.
Nevertheless, as the value of pensions, savings and other investments continue to fall prey to the vicissitudes of the stock market, and mainstream finance options begin to falter, the need for UK retirees to establish dependable sources of income or offer financial support for family members has become a matter of grave urgency.
Many financial experts believe that the equity release (ER) sector is uniquely placed to help older customers meet their financial obligations, offering flexibility and choice that could prove crucial to those who are reliant on equity wealth. Moreover, with many mainstream mortgage lenders choosing to suspend applications or to impose caps on borrowing, experts predict that demand for ER products will continue to grow exponentially over the coming months. Some lenders (such as more2life) are already prioritising video conferences and laptop valuations to keep customers on top of transactions.
Anecdotal evidence has already suggested a dramatic upsurge in the number of financial advisers taking ER qualifications (primarily, it seems, to remain competitive), while research by the comparison website Over50schoices.co.uk has discovered that consumer interest in ER products has remained buoyant, albeit tempered by understandable hesitation.
Consumer confidence, a fragile commodity at the best of times, appears to be undaunted by current events.
However, for many in the sector, ER is about more than just financial gain. The industry has taken a great deal of pride in the standards and safeguards introduced over the years to protect customers. It is the ability to transform people’s lives for the better, while ensuring that applications are underpinned by a robust and impartial legal process, that remains at the heart of everything we do.
To this end, the industry has worked hard to ensure that standards of service and protection are maintained throughout the crisis, and that existing safeguards are strengthened to counter the growing risk of wrongdoing.
As the number of people losing their jobs continues to rise across the UK, the potential for fraud, duress or coercion of vulnerable customers is likely to intensify. The Equity Release Council (ERC) has sought to pre-empt this by consulting with members on possible changes to its standards.
These changes allow for a temporary modification regarding the necessity for face-to-face legal advice, and to ensure that customers are offered the same level of protection and advice remotely.
A potential stumbling block is the requirement for deeds to be physically witnessed by a legal professional; we are currently waiting to see if lenders will accept a scenario involving non-legally qualified witnesses.
If they choose not to, we could see a distinct lack of lending in the near future and the possibility of the sector grinding to a halt; something that nobody wants to happen.
There can be little doubt that, given the chance, equity release could play a major role in mitigating the economic effects of the COVID-19 crisis, providing a lifeline for many thousands of vulnerable people.
A genuine force for good.