"Any provider coming to market will need to contend with a somewhat uneven regulatory playing field that may well mean a significant number of advisers are not even willing, or able, to advise on their products."
The equity release market shifts so readily and is constantly changing, from both a price and criteria perspective, that the outside eye might not understand that the market is significantly dominated by one product set – lifetime mortgages.
Of course, it wasn’t always this way, and the flip side of the equity release coin – home reversion plans – were also an option not that long ago, albeit one around which there was an amount of reticence about, and which – quite frankly – was the poor relation to lifetime mortgages, particularly from a regulatory point of view. More on that later.
Home reversions were raised at our recent ‘Breakfast with Stuart’ event and the question was asked whether we might ever see them return to the market? I hesitated to answer, because the day previously I’d had a pretty instructive meeting at which home reversion plans had also been a topic of conversation, and you of course should never say never.
However, what I can be pretty certain about is that, if reversions are to re-emerge onto the equity release stage, then they’re not going to be in their previous form. Let’s be frank here, much of the interest in reversions was around their ability to provide the customer with a greater amount of money for the home at the outset.
Now I’m very doubtful that, when compared to the array of product features we have with lifetime mortgages, this one – and according to some advisers back then, only - benefit is going to stack up against what is available now.
However, given that I’m all in favour of more product choice, I’m not going to pooh-pooh what a provider might feel is achievable with reversions in this current environment. But it is going to need to be different to what went before, not least because I know advisers tended to be uncomfortable with a product which might give, for example, a client £150k on day one for 100% of a property worth £500k.
I was far more in favour of reversions where the percentage ‘owned’ by the provider grew over time, hopefully in line with house price inflation. Plus, one provider in particular, had a renumeration strategy based on the payment of a renewal commission, providing the adviser with passive income that again would be earned over time.
And, of course, when it comes to reversions, we can’t help but consider the regulatory structure in which it ‘fits’. I don’t want to say that the FSA, as it was back then, forgot about the regulation of reversions when it was putting together the regulatory structure for equity release/lifetime mortgages, but it was definitely not a consideration.
This resulted in reversions being an afterthought and the powers that be decided to regulate by dint of a variation of permission for those active in the sector. It essentially meant that reversions didn’t come under MCOB, and as a result, meant firms had to jump through a significant number of hoops and incur a significant amount of cost to secure their permission and authorisation to advise and recommend on reversions.
Many simply didn’t bother, and the rules merely state that an adviser has to consider the reversion option, even if they can’t advise on it. If it sounds mighty similar to the ongoing debate we have about advisers covering lifetime mortgages/RIOs/mainstream mortgages as a whole – not in isolation - for older borrowers, then you’d be right.
So, again, any provider coming to market will need to contend with a somewhat uneven regulatory playing field that may well mean a significant number of advisers are not even willing, or able, to advise on their products.
These obstacles are not insurmountable in themselves but it would require a considerable amount of work to come to market and to make it a profitable venture, and to get the right consumer outcomes. I doubt (at present) there are many who would want to move down this route, although never say never.