Empathic approach needed for equity release valuations

James Gillam, managing director of Pure Panel Management, explains why an equity release valuation warrants the same attention as the advice process.

Related topics:  Blogs,  Later Life,  Equity release
James Gillam | Pure Panel Management
18th January 2024
James Gillam
"Considering the growing spotlight on house pieces over the last few months, they might hold preconceptions about their property’s value."

As we look ahead to 2024, we are likely to see equity release continue to play a central role in the mortgage market.

The later life sector has encountered many of the same setbacks as the wider mortgage market over the last twelve months, with the cost of living crisis and increased mortgage rates presenting challenges.

However, the market is picking up pace, with recent figures from the Equity Release Council showing the sector saw growth for the first time in 12 months in Q3, with quarterly increases in both new customers (10%) and total lending (8%).

We would expect this trend to continue, given the growing number of uses for equity release. Recent research from One Family shows that almost two million parents over the age of 50 have considered or would consider taking out equity release to help their children buy their first home. This need is unlikely to go away given the number of would-be first-time buyers struggling to find a footing on the property ladder.

Another increasing use for equity release we have seen over the last year has been to aid borrowers who may find themselves reaching retirement and struggling to repay their mortgage.

Recent findings from LV= - a provider we have worked with for many years - found that 32% of mortgage holders don’t think they will pay off their mortgage by age 65; not helped by the increase in mortgage rates over the last year.

Out of those it surveyed, 28% of homeowners would consider a lifetime mortgage, with 31% of those saying they would be more likely to because of the current economic conditions.

When we talk about equity release advice, a lot tends to focus on the advice procedure, with the valuation process sometimes overlooked. The valuation however is an integral part of the process and warrants the same attention as the advice process.

Research from more2life earlier this year found that the most common reason lenders decline equity release loans is based on the property’s value.

Its research showed that the top reason behind rejected borrowing applications was when the property failed to meet the minimum or maximum value criteria, or the borrower wanted a higher loan-to-value loan than was available.

Given the nature of equity release, there can be no room for error when it comes to the property’s valuation. There can also be other considerations around helping older borrowers, some of whom may be vulnerable.

In 2022, the Financial Conduct Authority (FCA) estimated that 47% - 24.9 million UK adults - showed at least one characteristic of vulnerability.

Older borrowers, in particular, may be at risk of vulnerability due to life events such as a bereavement, living with a long-term illness or day-to-day health challenges. They may also be financially vulnerable, either through a lack of money or a lack of understanding and knowledge about their finances.

They might be uncertain as to how a property valuation works or the factors considered when a property is valued. Just as with the advice process, they could prefer having a family member present.

It might have been a while since their property was last valued and considering the growing spotlight on house pieces over the last few months, they might hold preconceptions about their property’s value.

An empathetic approach may be needed, with a surveyor offering reassurance and guidance. This is why we ensure our valuations are conducted by professional, independent chartered surveyors.

As we potentially see demand for equity release grow, it will be increasingly important to treat the valuation process with the same sensitivities as the advice process.

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