As many Mortgage Introducer readers will know, equity release has been regulated by the FSA since April 2007. This regulation includes a requirement that those giving any form of equity release advice must hold an appropriate qualification such as the ifs School of Finance’s Certificate in Regulated Equity Release (CeRER).
Many mortgage advisers already hold the ifs Certificate in Lifetime Mortgages (CeLTM) or an equivalent and these individuals do not need to take a whole new qualification, they can simply take the CeRER “top-up” module to further update their knowledge and ensure compliance with these new regulations.
Some readers may be wondering why so many advisers are choosing to specialise in this growing market, the reasons are varied but the following should provide a good overview.
Regulation of equity release, coupled with the fact that most equity release providers are now signed up to Safe Home Income Plans (SHIP) and abide by their reassuring and rigorous code of practice, means ever greater numbers of consumers are viewing this as a mainstream financial option. This is borne out by figures which suggest £1.4 billion of equity was released in 2007 – a 24 per cent increase on the previous year. More recent figures also look positive. In the second quarter of 2008 £275million was released by SHIP members – a 14 per cent increase on the previous quarter.
It’s also important to consider that there are over 6 million retired homeowners in the UK and the number is growing. In fact, as Gordon Brown recently pointed out, for the first time ever, we now have more pensioners than teenagers in the UK. This suggests there is great potential for considerable growth in the future.
Advisers should not be disturbed by the Bank of England equity withdrawal figures released in October 2008. These figures showed that, rather than raising borrowed cash against their properties, homeowners injected a net £2.8 billion of new equity. This was the first such injection of cash since 1998 and the biggest in cash terms since 1970. However, these figures can be incredibly misleading as they do not relate to the volume of business in the bespoke equity release market i.e. where those aged 55 or above, who own their property outright, purchase a tailored equity release product which requires no repayment until the owner moves out of their home or passes away. Instead, they relate to any withdrawal of equity taking place. Indeed, the Bank of England figures relate to the same second quarter of 2008 that showed a big increase in equity release business via SHIP members (the £275 million mentioned before).
The evident desire of the British population to consider equity release has clearly not gone unnoticed by the adviser community because well over 3,000 have registered to take either CeRER or the CeRER “top-up” module during the last 18 months.
These qualifications ensure advisers are equipped to deal with the day-to-day equity release scenarios they will face, as well as providing crucial reassurance to the consumer that they really are getting expert and knowledgeable advice from a competent adviser.
The qualifications ensure candidates consider the suitability and affordability of the different types of equity release plans and their principal alternatives for different types of consumer: the advantages, disadvantages and potential risk to consumers associated with taking out equity release (and when these might arise) as well as the relative levels of risk for different consumers taking account of their individual circumstances.
One last issue that it would be remiss of me not to address is the recent report from consumer group Which?
The report seemed to ignore the fact that product providers are offering increasingly flexible products, that many plans carry no early redemption penalties and that interest rates are very competitive, particularly in comparison to the mainstream mortgage market.
The report also ignored the many safeguards set down by SHIP. All SHIP providers are obliged to provide a “no negative equity” guarantee, explain the effect of changes in house prices and ensure their literature clearly sets out the “…benefits, obligations, variables and limitations.”
This belt and braces approach has now been further built upon by SHIP which has now also introduced a compulsory certificate. This certificate requires solicitors working on an equity release case to sign a clause to show they are acting completely independently of the lender or financial adviser. These certificates also detail the costs to the individual’s assets and estate. Such clarification is another helpful step in combating negative stereotypes in the industry and should further enhance consumer confidence.
The response to the Which? report was a real sign of the maturity of the market. Five or ten years ago those advising in this area may not have had the confidence or credibility to defend the equity release market so robustly. The fact they have addressed the misgivings of Which? in such a positive manner bodes well for the industry.
One area that advisers, product providers, Which? and the ifs School of Finance do agree is that anyone considering equity release should seek advice from a professional.