It was an interesting opening gambit and perhaps tells you much about the dominance of lifetime mortgages when it comes to equity release take-up. However, and this is something that Bridgewater has been keen to remind all advisers of, lifetime mortgages are not the only equity release option and one would hope there is a commitment in the advisory sector to understanding reversions and being aware of when they might (and might not) be suitable.
Talking to specialists in the advice market I am sometimes concerned about what might amount to a ‘default setting’ when it comes to potential equity release clients. The setting basically reads, ‘lifetime mortgage’ and, given the fact that reversions are regulated equity release products I often wonder whether the alternatives are, firstly, covered sufficiently, and secondly, whether all advisers have the necessary authorisations to proffer advice and a recommendation on them in the first place.
I’m sure we’re all acutely aware of the rather large gap within the equity release sector which allows advisers to call themselves specialists but yet not be able to give advice, and recommend, on reversions. A number of the advisers attending our roundtable were relatively new to the marketplace and have therefore only ever worked in an environment where lifetime mortgages are pre-eminent. So, in their case, it is perhaps understandable that their knowledge of reversions is not what it should be however this wouldn’t excuse them should they find themselves in a situation where the client, who seemed completely suitable for a reversion, was found to have been sold a lifetime product.
The next question following this statement tends to be about when a client can be judged to be suitable for a reversion and I normally talk about client wants and needs, as well as discussing age, longevity, attitude to house price inflation, inheritance, etc. Many of the answers to these questions may lead a client to a lifetime mortgage however there are a number of key markers that might suggest reversion. For example, do they want to guarantee the amount of the property they have left as an inheritance? Do they want to be certain about the amount of equity they’ve taken and what is remaining? Are they older and looking to maximise their cash? Are they a single person? Do they believe house prices will stay at similar levels over the next five to 10 years? What does their and their family’s medical history tell us about their life expectancy?
Answering these types of questions in a particular way will give the adviser a direction to move in. In the case, for example, of a 90 year-old lady wanting to release equity on a single life basis and maximise the cash, then reversions may certainly be suitable. Certainly when looking at single lives, the individual is going to be able to release more cash when compared to a joint life reversion.
Armed with this information, the adviser can then look at the alternative lifetime mortgage option, the cash available here and also determine whether the client would be better off with an option that comes with a compounding impact and will leave the individual(s) not knowing exactly how much equity will be left in their home. Certainty in later life can be a prized asset and one would hope that advisers are fully aware of the reversion option and what it can deliver in this area.
Therefore, while reversions may not be appearing quite so readily on an advisers’ radar, particularly when there are far fewer options in the marketplace, they should be more than aware of their existence and when they might be suitable. Many practitioners may be discounting these products automatically, which would be a real shame for them and their clients, especially when pricing can change quickly and the suitability of their client at the very least demands they look at this alternative option.
