Responsible lending within equity release
Stuart Wilson is corporate marketing director of more 2 life
The rise in the number of people needing extra income or financial resource in retirement has resulted in the equity release market flourishing in recent years. According to the latest figures from Key, the market reached £3.6bn in new lending for 2018 alone. A wider choice of products and features as well as a focus on the value of advice and technology innovation have all contributed to its growth.
Each customer will clearly have their own preferences and needs, however, which will have an impact on the type of lending that they will need in order to enjoy their retirement to the fullest. Research by Moneyfacts revealed that there are now 200 equity release products available to consumers; in 2014, there were only 40.
With the options broadening so quickly, older clients need to think about what type of lending they will need, as well as what amount, in order to meet their requirements during retirement. For example, a client who wants to help their child fund their first property purchase is likely to need a bigger loan than someone who needs to fund some minor home improvements. This is where advisers can help customers understand exactly what is available and what they require in terms of borrowing – and also ensure that they are promoting responsible lending.
Different modern lending features will also play a key part in determining which products suit different customers best. Inheritance protection, downsizing protection and the option for capital repayment flexibility, amongst others, are all features which advisers need to be fully aware of when speaking with customers. Whilst a particular product may be a good option for one customer, it may not be right for another, highlighting the importance of taking the time to address each client’s specific needs.
This not only includes advice on which type of equity release loan would be most suitable, but also what effect taking such a loan can have on other sources of income or the value of the inheritance they leave behind. When dealing with life-changing products like equity release, it is important that all parties know exactly what these financial solutions entail.
For this reason, advisers need to consider their clients’ current circumstances alongside their future plans when determining the best solution for them. This holistic view of a client’s financial situation will help advisers tailor a solution to provide the finance a customer needs, at the best possible price.
Furthermore, an ageing population brings with it the potential for more vulnerable clients. In 2017, the FCA estimated that half of UK adults (25.6 million) showed signs of potential vulnerability, adding another important factor which advisers should be considering when discussing lending with customers.
Recent research by more 2 life saw more than eight in 10 advisers saying there needs to be greater education within the market on how to spot and interact vulnerable clients more effectively. Otherwise, these clients may end up with a product that is not right for them.
more 2 life recognises the value of advice in this way and we think lenders in this market need to listen more carefully to the specialist equity release advisers. In doing so, it will enable them to create a wider range of modern, highly flexible products designed to help advisers grow this market and deliver ever better customer outcomes. Advisers are essential in safeguarding customers and identifying what is the correct option for their circumstances, and we hope to see more of the equity release market striving for and highlighting the importance of the very highest standards of responsible lending.