Equity Release remortgages boom
The number of homeowners who have remortgaged their Equity Release deal has boomed in the last 12 months. This is largely due to the industry starting to look after existing clients in addition to attracting new ones.
In 2020 only 1,011 Equity Release remortgages took place, a figure that is thought to have grown at least five-fold this year. This sounds like an impressive number, however when you consider that over 500,000 people have taken out Equity Release in the last 20 years, this means that only one percent of clients reviewed their deal this year.
The main type of Equity Release is called a Lifetime Mortgage and over 99.5% of Equity Release deals taken out now are these types of mortgage. The name suggests that the mortgage continues for a clients lifetime, which has led many people to assume that they are stuck with the same lender and interest rate until they die.
Check your paperwork if you have taken out Equity Release
However, as Stuart Powell, Managing Director of Ocean Equity Release explains, ‘Many of the deals taken out over the last 20 years had Early Repayment Charges that were fixed and had an end date. Anyone who has taken out a Lifetime Mortgage in the last 20 years should check their paperwork or phone their lender to see if their ERC has ended.’
The main benefit of remortgaging is that Equity Release rates have plummeted in the last five years. This means that clients who took out a deal over five years ago may be able to fix on a lower rate, and may even be eligible to borrow additional funds if needed. Although lenders are required to send an annual statement, there is no regulation to insist lenders explain to clients that they may be eligible to move to a different deal.
Who should be driving Equity Release reviews?
So if the lender is not motivated to inform their clients about the possibility of moving to a lower rate, how about the person who gave the initial Equity Release advice? The vast majority of Equity Release advice was given by a Financial Advisor or Equity Release specialist but as Samantha Bickford, Managing Director of The Equity Release Lady explained:
‘There are very few broker firms that offer regular reviews to Equity Release clients which we feel is wrong. Each of our clients are offered a bi-annual review in which we discuss if their deal is still suitable for their circumstances. I know that many advisors have retired since they advised clients on Equity Release and these clients have been left without an advisor.’
Are there enough Advisors to achieve this?
Mrs Bickford makes a really valid point here. The average age of a Financial Advisor in the UK is 58. We know that they are likely to retire at 65 (if not earlier), and many of their companies are closed when they retire. This means that their client base is often not passed on to another firm to continue future advice and support for those clients. Consequently many clients do not receive bi-annual financial reviews.
We also know that the UK does not have enough Financial Advisors, Mortgage Advisors or Equity Release Advisors to cope with the current demand for advice, a situation that is predicted to worsen over the next ten years with 58% of advisors set to retire. These advisors are not being replaced at anywhere near this rate, so it is likely to become increasing difficult for overworked Advisors to regularly review their existing Equity Release client base.
So if the lender is not informing the client of their option to remortgage, many of the Financial Advisors have retired without passing their clients to another advisor and the number of advisors is set to diminish rapidly, how will the desire to ensure more Equity Release clients receive regular reviews be achieved?
This needs to be a topic that is high on the agenda of the Equity Release Council who can work with the FCA, firms and lenders to achieve the fairest possible outcome for all existing Equity release clients.
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