This is a follow-up to my post “Equity Release Revisisted” which prompted me to look into the subject again and start a new series of blogs on the subject.  I first wrote about this in 2012 and then again in 2015.  (You can find my earlier posts by clicking on Equity Release in the TAG CLOUD).

My research about Equity Release continues and today I stumbled upon a Report commissioned by the Adam Smith Institute, that you would be most unlikely to find, unless it was raining and you had nothing better to do.

It is obliquely called “Asleep at the Wheel: The Prudential Regulation Authority and The Equity Release Sector “.      Sounds like riveting stuff 😀.       Written by Professor Kevin Dowd of Durham University.  It is not exactly bedtime reading, unless you want to go to sleep.

But, it has some interesting facts about Equity Release which I’ve repeated below :-

• The UK’s Equity Release market nearly trebled in size between 2012 and 2017 and is forecast to grow a further 40% by 2020.
• Prudential Regulation Authority stress tests in 2017 indicated that a 30% house price fall could lead to losses of between £2 billion and £3 billion.
• Firms are greatly under-valuing their No Negative Equity Guarantees – guarantees that ensure that borrowers’ debt can never exceed the value of the mortgaged property.
• We never seem to learn. Equitable Life hit the rocks two decades ago because it under-valued its long-term guarantees. Now the Equity Release sector is in deep trouble for the same reason.  In both cases, the firms involved got into difficulties because they were using voodoo valuation methods that had no scientific validation.  Same causes, same results.

The report was published in August and received quite a lot of attention in the financial press.  But, it did not appear on the national news, nor is it likely to have been seen by the majority of older people.  There has been quite a muted response from the Equity Release providers, who have very much played down the report.

The immediate impact of the report does not affect older people who have taken out Equity Release loans, since they already have their money.   The bigger impact could be to the industry as a whole because if this report is correct, they are seriously under-capitalised.

If this report is anywhere near correct, then the Equity Release market could collapse altogether.

Is this the first warning signs of an Equity Release sector in trouble?  It’s probably going to take someone with more time and skill than I have to get to the bottom of this.  

BUT I’ll keep trying.

This is a follow-up to my post “Equity Release Revisisted” which prompted me to look into the subject again and start a new series of blogs on the subject.  I first wrote about this in 2012 and then again in 2015.  (You can find my earlier posts by clicking on Equity Release in the TAG CLOUD).

I’ve been floundering around for the last few weeks looking for information about Equity Release on the internet.  There’s plenty of it out there but it’s nearly all adverts by agents trying to get you to take out loans.  They claim to be giving you independent advice but it surely has to be biased by the fact that they only get paid if they succeed in getting you to borrow money.   I certainly wouldn’t call that independent !

They all seem to be reading from the same script.   I think by now I could run a training course for Local Agents.  It would go something like this (my scepticism are in italics):-

Learn the following and repeat after me  :—

• Equity Release is the best thing since sliced bread.
• Of course, I am not here to sell you anything.
• There is no fee for my independent advice —– at least not yet.
• You can borrow a lot and you won’t have to pay back anything —– at least not yet.
• You don’t even have to pay interest on the loan —– that can be paid after you have gone.
• What’s not to like about that —– remember to keep smiling 🙂
• You can use the money to fulfil your dreams.
• Go on a holiday, give money to your grandchildren, spend it on things you could never afford before —— just make sure you tell them to live for 7 years or the taxman might have something to say about it.
• Or  make you home more suitable with a stairlift or a wet room or maybe the conservatory you have always wanted.
• It sounds too good to be true, but why not enjoy your wealth while you can.

There are just a few other things before we can set you on course to the pot of gold at the end of the rainbow :-

• We will have to get your house valued for a small fee.
• Oh and you will need a solicitor to draw up the legal agreement to put a charge on your house, we know a friendly one.
• It can all be done in a few weeks if you just sign on the dotted line.
• Then the money will be all yours 😀😀😀😀
• By the way there will be a charge that the loan company will make, but that can be deducted from the loan so you don’t need to pay it.
• My small fee for all this helpful independent advice can be paid that way to.

One last thing you ought to mention …. interest rate.    But, don’t make  too much of this and explaining “compounding” might just confuse them —– don’t worry they probably won’t admit they don’t understand compound interest.

• There will be interest on the loan, but you can pay it at the end —– or should I say your end.
• It is a bit higher than a normal mortgage, but is a lot cheaper than credit cards.
• In fact it is only about 5% or 6%.
• Yes I know that is about double the mortgage rate, but we are taking all the risks and we won’t get any money back until you die —– or if we are lucky you move into a care home.
• And the best thing of all is we give you a No Negative Equity Guarantee.  Which means you will never pay more than you house is worth —– even though by then we will have it all.

So now you have it all, go out a sell the happy life.   And remember you get £1500 for every Equity Release Loan you sell !

This is the sort of patter you are likely to encounter if you enquire about Equity Release.  It’s a hard sell wrapped-up in the cotton wool imagery of a luxurious lifestyle in later life.  If you’re going to sell something which is not particularly good value for money to older people who probably have few alternative sources of additional finance, this may well be the option of a last resort. 

BUT, that doesn’t mean that older people should be taken advantage of !

This is a follow-up to my post “Equity Release Revisited” which prompted me to look into the subject again.   I first wrote blogs about this subject in 2012 and then again in 2015.    (You can find my earlier posts by clicking on Equity Release in the TAG CLOUD).

Where on earth do you start with this ?   It should be simple and straightforward.    There are occasional adverts on the tele, but they appear and disappear so quickly that you can’t remember any contacts from them, so that’s no good.   I do recall an advert a while ago.   What was that nice man Michael Parkinson on about ?    Oh no, that was funeral plans.

Maybe there will be something in the papers at the weekend.  I flipped through every page of the Sunday papers, especially all the ads about sit-in showers and mobility scooters, but, I couldn’t find a thing.

Of course, there will be everything you would ever want to know on the internet, but, that remains a mystery to the majority of older elderly people.    Yet they are the very people who might most need equity release.

Perhaps I could start with that helpful little brochure that came through the post the other day.    I don’t remember sending for it, but, I suppose I must have ticked a box somewhere.   It’s called “RetireWise” from Key, whoever they are.    It looks like a magazine, with quizzes and prizes, but, I think it is no more than an advert for equity release.

Sure enough when I open it, I can see it is a 28-page advert for equity release, plus a few plugs for stair lifts and travel insurance for old people and cosy wide fitting shoes and ready meals and wills.   That’s obviously what life’s all about when you start thinking about equity release.

Then there are lots of reassuring words about equity release.  Key words like “more choice”, “more freedom”, “SWEET FREEDOM”, “the best of times” and last but not least “safeguarding your future”.   In other words, if you don’t opt for equity release, who knows what will happen to you.

There is a problem here however.  Having read all 28-pages I can’t really find any facts.   I guess that’s why at the bottom of every page is a footnote suggesting that you “ book a free consultation with your local adviser today”.    Not a lot of magazines offer this excellent service of a home visit.   I don’t remember this home visiting service coming with the Beano when I was a child, nor with Architects Journal when I was training and could have done with some occasional advice.   It doesn’t even come in Amateur Gardener when a bit of help around the garden would be most welcome.

I did find one set of figures, which were about fees for this advice, if you decide to go ahead.    It’s free —- “There are no up front fees”, so the brochure claims.  Except ….. you do pay 1.99% of the loan, but, there is a minimum fee of £1,499.  This means you have to borrow £75,000 or more for the fee to be 1.99%.   On lower loans the percentage will be much higher, so if you were only to borrow £15,000 the fee would be 10% !

It is little stings in the tail like this that make me sceptical about equity release.   It is not a lie, but, it doesn’t tell the complete picture.

More research is needed and I’ll write about it again in a few weeks ………..

I first wrote blogs about this subject in 2012 and then again in 2015. ( You can find my earlier posts by clicking on Equity Release in the TAG CLOUD).

The use of this type of borrowing has grown substantially since then, so I thought I should take another look at it.   In principle I am in favour of older people being able to use the value of their property to secure a better lifestyle for themselves.  I have long advocated that people should be able to do this, as later life is not an easy option for many older people.   Indeed I once went to 10 Downing Street to lobby Professor Julian Le Grand, a financial advisor to the then Prime Minister – Tony Blair.   I advocated that the Government should underwrite Equity Release to enable interest rates to be lower and also to regulate some of the dubious practices in the industry.

But there is a BUT, and it is a big BUT.  

Is it good value for money ???      I have rehearsed these arguments in my earlier posts, so l won’t repeat them all here.   My purpose now is to see what has changed in the last five or six years.

The use of equity release mortgages in the UK has more than doubled  according to The Equity Release Council ——- which is a front for major Equity Release providers —— from around £1.4 billion in 2012 to over £3 billion in 2017.

Adverts for Equity Release concentrate on image but are short on facts.  They focus on providing for important needs such as home adaptations, but they also show how you can cash in on your piggy-bank of a home.  The images they use are of you living the high life ——- everything from home extensions to holidays, to funds for family or education for grandchildren.

Nothing wrong with that——— why not enjoy your hard-earned wealth ?

But you need your wits about you when you take out an Equity Release mortgage.  The adverts on the telly and in the press don’t go beyond the glossy images but you have to be a detective to find the hard information behind them.   Why would this be if it’s all so above-board and such a good deal ?

No worries.   They will send you a friendly advisor to explain the full glories of their proposition and after that I’m sure 80 year olds will have no difficulty understanding the difference between life-time mortgages and home reversion plans and provisions for draw downs.   Oh, and the different interest rates offered between each Equity Release provider and how your age is relevant. And the state of your health and your partners health.  And the difference between fixed and variable interest rates and whether you will repay interest or not.   It’s no more complicated than that !  Just a few simple questions, which should only take an hour or two !

But, you have also got to remember there are setting-up costs like solicitor’s fees and valuer’s charges and financial advisor’s commissions and the lenders setting up fee.   They all have to be paid before you get your hands on these new-found riches.  But don’t concern yourself it can all come out of the loan or you can even roll it into the loan an never know you have paid it.    Magic !

But, this is all very well as long as the tax man agrees …… and so long as you die suddenly before the money runs out.

Because if you find yourself needing money for care, the taxman will want to review your earlier spending and he may not think your ten holidays in Spain were essential; nor that your luxury conservatory was critical to your housing needs.   Nor the brand new classic soft top car that you always wanted, with the personalised number plate was necessary to replace your old Ford Fiesta.   Let alone the three colour televisions, complete with Sky Sports and Netflix and Dolby surround sound system.

Better get a ‘social prescription’ from your GP to say it was essential to combat your loneliness and depression.

I’m sure 80 year olds will have no difficulty understanding all of this but over the next few weeks I intend to look more deeply into it and then I will write a follow-up to this rather sceptical view of Equity Release.

To be continued……………