UK could imitate US equity release model
Mirfin was pleased that the Financial Conduct Authority will imminently review its rules on the equity release market, as he felt regulation could be tweaked to help an increasingly aging population draw on their housing wealth.
Mirfin estimated that the no negative guarantee, which providers registered with the Equity Release Council have to build into their products, adds as much as 1% to the rate as they have to carry the risk. If the UK government were to carry the risk therefore products could be much cheaper, something that would help the industry throw off the age old criticism that equity release is too expensive.
He suggested that requirements like the no negative equity guarantee could be removed for certain product types like interest-only, where mortgage prisoners are typically unable to borrow at a high enough loan-to-value to transfer onto a lifetime mortgage.
He said: “Regulation hasn’t changed in over a decade so now is the time to take a fresh look at how the UK lends to older people.
“Equity release is a lot more popular in America because the government has a no negative equity guarantee – that’s one of the options to look at.”
He added: “Let’s throw away the rulebook and look at what we can do to help people first, then look at how to best advise and still protect customers whilst still meeting these changing needs of the market.
“Nobody’s saying the existing broker products don’t work but we’re talking about clients who are faced with selling their house.
“You could have categories with different requirements such as interest-only.”
Last week Robert Sinclair, the chief executive of the Association of Mortgage Intermediaries, predicted the equity release market would reach £5bn of lending by 2020. Mirfin predicted £1.7bn of lending this year, which he said would mean the industry is well on its way to achieving that target.
Last week Mirfin called for all equity release advisers to look into customers’ health and lifestyle. Factors such as body mass index and smoking are influential in whether a client qualifies for an enhanced product. This may not only ensure a better outcome for the client, but it will also help advisers cover their backs.
He explained: “While advisers understand that customers can get a higher loan-to-value with an enhanced product they don’t all realise that underwriting a client can lead to a bigger inheritance guarantee.
“If client dies and ends up leaving a smaller inheritance than they could have had with an enhanced product and the adviser has no evidence that they asked them questions on health and lifestyle that could go to the Financial Ombudsman Service.”