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February 2020 | Equity Release

Stuart Wilson: Squaring the consumer circle

Stuart Wilson is CEO of Air Group

It is incredibly early days in both this new year, and new decade, but I get the sense from many others working in the housing and mortgage markets – and indeed our own engagements – that 2020 has started off in an overwhelmingly positive fashion.

Now how much this (for want of a better phrase) ‘Boris Bounce’ would have occurred regardless, is up for debate. I think it’s quite fair, and obvious, to say that without the Conservative’s overwhelming General Election victory in December, the chances of any type of ‘bounce’ would have been incredibly small.

Indeed, I also suspect that many were fearing more of a ‘Corbyn Crash’ than any kind of fillip – we will, of course, never know how this might have played out, but there’s no doubting that the highly-interventionist housing measures that could have been introduced by the Labour Party would have fundamentally changed the entire industry.

For good or for bad? Who can tell? But I do know, from one individual who is in charge a lender, that they were fully prepared to pull up the drawbridge on their involvement in mortgages the day after the Election if Labour had won a majority or were going to form a minority or coalition. It appeared to them to be that serious, and I know others felt similarly.

But away from the political repercussions – and I’m conscious that while we left the EU on the 31 January there is much trade water to flow under the bridge – what about where we currently sit in terms of housing? Of course, there is also a Budget in March to look forward to, and therefore any views on what might be coming over the horizon for the market, is caveated greatly by any potential measures or actions introduced by Sajid Javid next month. Stamp duty cuts for downsizers, anyone?

That said, when it comes to housing, the numbers tend to tell their own story, and I’m sure many in the sector have been looking at the various new iterations of the house price indices with some interest.

After a number of years, when house prices appeared to be redefining the phrase, ‘bumping along’, it appears that we could be on the verge of a push upwards.

There are many reasons for this, not least the ongoing issues governments continue to have in building enough properties, but those supply-side problems do clearly have an impact on the price of properties and the demand in the market for them.

This new government has suggested it will be able to build 300,000 new homes by the middle of the decade – the issue being of course that no-one quite believes it can be done, plus we are attempting to make up a shortfall in numbers from the last couple of decades, let alone the last couple of years.

However, for existing homeowners at least, the news – from Halifax’s latest house price index, for example, – that UK average house prices rose by 4% last year will be greeted warmly.

Indeed, the bulk of this increase came in the last quarter of 2019 with the anticipation this will continue during 2020 and beyond. It might not be the double-digit increases of yesteryear, which were always unsustainable, but it is certainly a significant notch up on what the norm has been.

In the equity release sector, this increase in potential equity this would bring is clearly a source of interest, especially when increases in valuations might make the ultimate difference in delivering confidence to clients that equity release is the right option for them.

Recent research from Canada Life, which was actually based on the more modest price increases detailed by the Nationwide House Price Index (average prices up 1.4% year-on-year), revealed that the amount of available equity within older homeowners’ properties was now up to over £381bn, which was a £1bn increase from the same period in 2018.

Older homeowners here are classified as being 55 and over, the age at which borrowers are able to access equity release options, and this boost to available and accessible equity might well result in the amount of lending being increased throughout 2020.

However, let’s not kid ourselves, that – for large numbers of older consumers – there aren’t still considerable obstacles to overcome, especially when it comes to the negative perceptions they might have about equity release and, indeed, whether they truly understand the equity release option at all.

Again, research by Canada Life suggests that there is much educational work to carry out in the consumer space, not just to get consumers to visit and contact advisers, and to know where to go to for that advice, but to get them comfortable with a product that many still consider to be the same that was sold back in the late 1980s/early 90s.

Indeed, those negative perceptions and pure misunderstandings of equity release are, according to advisers, likely to significantly hinder growth. 77% of advisers believe this, an increase from 38% in 2016. 46% said the biggest barrier was consumer awareness of equity release, and it’s obvious point to make – but totally relevant – that if the client doesn’t understand the product then not only won’t they take it out, but they shouldn’t be going anywhere near it in the first place.

So, while there are positives to hold onto – increase in equity in properties, the growing need for lending into retirement, and a greater understanding of options – there are still major challenges.

Improving consumer education is easier said than done, as is ensuring these potential customers know the importance of specialist advice not just on equity release but all other lending options in retirement, and where they should be going to secure it.

This sector still has bags of potential and there are plenty of opportunities for advisers but we must square the consumer circle, and continue to push the messages around its reality, why it can be the right option, and that advice should always be a non-negotiable.