22nd October 2019
Figures published by the Equity Release Council have revealed that around £1.85 billion worth of housing wealth was unlocked in the first six months of the year as demand for later life funding reached record highs. The organisation’s Autumn Report showed that over 41,000 plans were taken out by financial consumers during the first two quarters (rising by 6% on figures for the same period in 2018), while the number of market products also continued to accelerate (climbing from 126 in August 2018 to a whopping 287 in August of this year) and average interest rates continued to fall (decreasing by over 1% since July 2016 to a current average of 4.82%, with some Lifetime mortgage products being offered with interest rates as low as 2.82%); a remarkable market precedent.
Yet, while it has become something of a cliché to preface any discussion on the merits of equity release by referring to its growing mainstream acceptability, the sheer flexibility and applicability of ER means that it is no longer sufficient to view it as simply another successful financial product but, rather, as an option which is revolutionising later-life choices and changing people’s lives for the better- a meaningful force within our society. Indeed, the list of possible scenarios which can be supported and enhanced by ER is beyond parallel (whether it is to service debts or home improvements, provide financial support for loved ones or offer a lifeline to clients who are coming to the end of an interest-only mortgage), while the range of in-built safeguards (such as the no negative equity guarantee) should be apparent to even the most jaundiced of observers. However, as levels of demand continue to grow with every passing year, so too does the need to maintain irreproachable standards of protection for prospective custom-bases, especially those whose individual circumstances may not be compatible with the demands of ER (for example, those who are reliant on means tested benefits or who wish to leave the full value of their property as an inheritance). This means that taking professional and impartial legal advice alongside that of a financial adviser is nothing less than essential- a means of establishing whether clients are making the right financial decision. Thankfully, however, one of the great strengths of equity release is that all customer applications are supported by a rigorous legal process.
All of the key players within the ER industry are members of the Equity Release Council; an organisation committed to maintaining high standards of service and advice throughout the sector and of ensuring that firms comply with regulatory rules and provisions. One of the principal requirements of ERC membership is that providers must confirm that their clients have had at least one face to face meeting with a fully qualified and independent legal adviser and to submit a signed Solicitors Certificate to support this consultation before they are allowed to proceed with the completion of a contract. In practice, this means that a solicitor will prepare a written report which is specifically tailored to reflect the type of plan that the client has been offered. This report will outline the way in which the plans works and list the comparative pros and cons of proceeding with such an option, although it will not advise clients on whether one product is more suitable than another. The solicitor will also address a range of other pertinent and potentially crucial issues (such as the desirability of making a will or, in the case of couples, of taking out a Lasting Power of Attorney in order to ensure their wishes are followed in the event of any future loss of mental capacity) and analyse each and every aspect of the report to ensure that the client understands the full implications and obligations of their plan. The process also allows solicitors to gage whether a client has been unduly influenced or even pressurised into entering an ER contract by a third party and to ensure that they have sufficient mental capacity to proceed; a valuable safeguard, especially at a time when the treatment of potentially vulnerable customers is of such a concern and apparently growing. Indeed, given the rigour of this process, it is easy to see why the ERC has so warmly welcomed the FCA’s draft recommendations on vulnerable customers as many of the suggested safeguards are already in place.
Once this stage has been completed, all records relating to advice are then stored for a minimum of six years in order to safeguard practices from the possibility of complaints at a later date, either from clients themselves or, perhaps more likely, from disgruntled beneficiaries; a policy which effectively protects all parties and maintains high standards of accountability. Indeed, it is widely acknowledged that the number of complaints received by the FCA in relation to ER products has been consistently low over the past decade or so, especially when compared to the mainstream mortgage market, and that those which are filed are almost never upheld. This is testimony, in and of itself, to the robust quality of financial and legal advice within the sector and of the stark contrast between the principles which govern ER and the complete absence of legal advice required to take out a Retirement Interest Only mortgage; a ticking time bomb on the horizon. Ultimately, equity release represents a substantial financial commitment on the part of clients and therefore our position as solicitors means that we can make the difference between positive outcomes and the possibility of harm- a position which we take very seriously. But, it’s also one that we believe is helping to contribute to the success of equity release while availing customers valuable peace of mind. And, that, for us, is priceless.
