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Harnessing the Potential of Equity Release
As part of a new blog and LinkedIn series, we are taking our readers behind the scenes at Vintage through in-depth thought leadership pieces with key members of staff. For today’s post, we are in conversation with Elliot Simberg of Vintage Wealth Management who has chosen equity release as his interview topic.
Predominantly working with mature clients and bringing more than 20 years’ experience in financial services to the table, I advise on investments, pensions and many other key areas on both a personal and corporate level.
As a senior adviser within the equity release sector, I am also a member of the Equity Release Council. Along with in-depth experience and insight into financial solutions for mature clients, I have a naturally empathetic and affable nature which has allowed me to forge strong relationships with my clients and their families.
Equity release is one of the rising stars of the financial services industry and mortgages are currently cheaper than they have been for 12 years. As the average fixed and variable rate mortgage rate has fallen below 4% for the first time, this is a rapidly expanding opportunity in both flexibility and scope. There has never been a more important time to talk about equity release.
So why is equity release so pertinent to both me and the current market? I deal with inheritance tax and tax planning for a mature clientele, and equity release covers both areas. Equity release was designed primarily for income in later life but is used for many reasons including property purchase and as a way to potentially save on inheritance tax.
Borrowing money against the value of your home reduces the value of your estate and the tax due. It is very pertinent and becoming more and more recognised as an important part of financial planning.
It originally had a bad name, but the equity release market is now constantly evolving to cover a far broader range of customer needs. Research shows that nearly half of over-55 homeowners are re-evaluating their later life lending, viewing their property less as something to leave behind and more as a flexible tool to realise their own financial ambitions or the ambitions of those closest to them.
As one would expect, equity release is highly regulated because in many instances, we are dealing with what the FCA class as vulnerable clients
There is a lot of marketing taking place within the industry which is influencing people to sit up and find out a bit more about it. It’s also helping to dispel some common myths because I do think that equity release as a product could be more simplified to help clients understand it a bit better.
For example, by far the most frequent question that my clients ask is ‘Do I still own my own home once I take out equity release?’ The answer is yes, of course you do.
The best way to look at equity release, especially a lifetime mortgage, is that it is a mortgage by way of a loan on one’s property in the same manner as to how most properties are purchased in the UK. It is a mortgage for people aged 55 plus; it does have this age restriction but it’s still a mortgage. The property still remains in the name of the borrower and they still own the home.
Equity release is the generic description for releasing equity from one’s home. This falls into two areas – the first is home reversion, where you sell all or part of your home, but this type of product would only be recommended in exceptional circumstances. The second is the lifetime mortgage, which is what we’re discussing here.
2019 saw the UK equity release market record its fastest ever start to a year.
We need to continue to propel growth through innovation and improved access to quality advice. Regulation is also a key factor for both improved product delivery and to give the product a (well-deserved) stronger reputation.
There are further improvements that could be made because I think that equity release regulation hasn’t gone far enough. I believe that anyone operating in this field, in addition to having the basic qualifications, should also have the long term care qualification. You are dealing with more mature people whose needs may be complex which means a knowledge of the care system is essential.
As a mentor to trainee advisers, I firmly believe that newly qualified advisers should be shadowing an experienced adviser for a minimum of six months after they pass their exams and before they are even allowed out into the marketplace.
There is a large advice gap in the equity release market, and this is why our team at Vintage Wealth Management offer something so unique as advisers. There are currently 700,000 people reaching retirement age each year but just 33,000 registered advisers in the UK. One in eight advisers are not qualified to advise on equity release but Vintage sit high above the average.
Among our 20 advisers, 10 are qualified to operate within this market. We are skilled in working with mature clients and we have a wealth of experience behind us. We also have the backup of a very experienced Compliance department to make sure we are doing the right job!
I think that another of the most important myths that need to be dispelled is that the equity release product is a limited one.
The market has twice the number of products in comparison to just two years ago and there is plenty more room for innovation.
Equity release is becoming more and more flexible. People can take regular monthly drawdowns so it can become an income product. Then there’s capital protection, and then people also have a choice where they can either make the payments so that the interest doesn’t roll up or they can let the interest roll up and pay as and when they want to.
There is also a misconception that the ways people can use their equity release loan are fairly limited. In fact, the loans are used for all sorts of things. The most common areas within the marketplace are landscaping gardens or gifting to children or grandchildren to start them on the property ladder. Here at Vintage, many of our clients use the money to gift.
People are also starting to use the equity release loan to purchase a property. This is an area that was previously very seldom looked at, but the loan can be used to upsize or downsize according to individual requirements and circumstances. This is another emerging innovation and I think it will become very popular.
We’re currently linking up with some estate agents to help them understand and promote this opportunity. Say that someone walks into an estate agent who is of the right age and they want to buy a flat but can’t get a mortgage or are strapped for income. This is a great way of getting them into that property by offering this service.
Even though equity release is open from the age of 55, most clients are aged 65-70 and age is a key factor when it comes to this product. More and more older women who live alone are using equity release. On average women live longer than men, and the loss of their husband or partner can bring with it a loss of income as their pension will reduce. Their equity release loan can be used to supplement income.
This is an adaptable industry and there is a huge amount of growth left.
It was not previously permitted for equity release clients to have a lodger in the home, but this restriction has been lifted. There are new lenders coming into the market with innovative products.
People are looking at equity release more and more, companies are evolving and it’s opening up. Most of the loans are fixed rate for life but some of them are also variable rates – the same as a mortgage – so it can go up and down which is an option that some people want.
The biggest issue under scrutiny at the moment is what to do with early encashment charges. If someone wants to redeem their mortgage for any reason, the penalties can be quite high. That’s being looked at by the Financial Conduct Authority and the Equity Release Council who are trying to reduce the penalties. It’s something that’s being worked on and it’s another innovation.
Above all, I feel that it’s very important to let our clients know that we are here. We are here to talk. People often feel a bit scared but I’m always at the end of the phone if you want to have a chat and ask questions. I do encourage two things – I encourage my clients to ask questions and I encourage that they have a member of the family or close friend present at the meeting as it gives them peace of mind and a bit of comfort.
To understand the features and risks of a lifetime mortgage, contact us for a personalised illustration.
You may be subject to early-repayment charges if you want to exit the deal or pay the loan off early unless you pass away or move into care.
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