Equity Release

173 | Equity Release

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Tutors:

  • Paul Shirlaw, Equity Release Adviser, Crabtree Consulting
  • Jason Ruse, Business Development Director, Key Group
  • Richard Merrett, Head of Strategic Development, SimplyBiz Mortgages

Learning outcomes:

  1. To gain a better understanding of the later life lending market
  2. To understand what tools are available to support me and my client
  3. To gain a greater understanding of whether my firm should enter the market

Channel

Akademia

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It may contain errors and omissions.

how can advisors use partnerships to offer their clients later life lending solutions here to help me answer that. I have a panel of experts. I'm joined by Jason Reus business Development director at Key Group, Richard Merritt, head of strategic development at simply biz mortgages and paul, Sherlock Equity release advisor at Crabtree consultant. So it's starting with you, paul, what are some of the problems that retirees are facing right now? Um but I did a google search prior to knowing I was coming here and right at the top of the list, in fact was the senior citizens fear running out of money simple as that. And the essence of this is that we have the solution to that problem in the way of equity release. The second issue that older people have is that they want to be able to live in the house that they've lived in for the last 40 years. It's very important to them. People don't like upheaval as they get older, it's the worst time for them. Third reason, and this is a general google search here, It was not, it was sorry, the death of their spouse or another family member. So you've got three major issues there that the elderly generation face and I think we have the solution and coming to you, Richard, what actually is equity release and so I could release is leveraging against a property using the property as an asset to be able to extract whether the lump sum or income from it. I think people do get hung up on the equity release as a product and it can actually um come across a range of different options. And what we've always talked about is badging it up as later life lending because then you have a variety of different other options. So it can be um mortgages in retirement that are funded by a mainstream funder bank or building society and it can be Rio or retirement interest only options. So there's a range of different solutions available to customers. So later life lending sort of encompasses all of that. And this Jason is on the rise. Can you talk a little bit about that? I mean, why is this increasing? Well, you've got an aging population, so a lot more people are living longer into later life, I won't say retirement because I'm not sure anyone actually retires now is gonna set day, I think they phase into different elements of later life, maybe they sort of go to three days a week and then maybe a day a week and then they, and I think if you look at the pension provision in the UK Germany, that's quite pull. So there's less sort of gold standard pensions now, less defined benefit type pensions, so people are more around having their own defined contribution where their pay something and maybe their employer pay some think, um and I think if you sort of look at those two elements um coupled by the fact that there's significant property wealth. So, you know, it depends on what report you read the over 55 control over one tree and of property wealth. So I think if you look at those sort of living longer, and also the care element, because, you know, there's more people now that, you know, probably require care people living longer, but not necessarily in great health. So do they need care in a nursing home or probably more now, we're probably looking at care thomas, Ilary receiving that care at home. So, I think if you couple them together and a significant amount of housing wealth, there is that's the reason why people are looking at using their property wealth to actually provide him possibly with a better later life for either themselves or for helping a family member. So it's that shifting demographics. Absolutely. And I think, you know, that that will continue as you know, as I say, as people do Germany live longer nowadays. And Richard, I saw you nodding there, Is that what you're seeing as well? Yeah, absolutely. And I'm just building on what Jason said, and I think you've got more instances of people planning for retirement rather than it just being appointed about being in retirement. Um, you know, people certainly the mass affluent, we've seen a lot of more people retiring early from the main job that they did, but then maybe taking up a self employed role or a consultancy role or a couple of ned positions, for example, and where that change in their requirement shifts as you get people who have been used to having a high level of income who then aren't in the position where they need this point of last resort as I think in the past, equity release has been viewed but actually need a workable solution because they've seen a drop in their income and want to maintain a lifestyle but have a significant number of other assets and that they can deploy and the home should be very much viewed as one of those assets in finding the solution that is right for their needs. Yeah, I think that's a good point because I think for most people property wealth will be their biggest asset. So they might have might have pension, they might have other investments, but because of the growth in property wealth over the last sort of a couple of decades, you know, a lot of people have got a significant wealth within their property. So how do you access that? You know, you can't sell one brick, you know, you have to look at the entirety of the property and how can you use that to its best means? And if you consider looking at from a sort of tax perspective as well, you know, is the property better to use and other assets you've got, you know, will you have a tax implication, if you do cash in those other assets for maybe a capital purchase or because you want to help family member, uh, especially now, you know, in the, in the covid situation that we're in that you might wanna actually give money now because you want to gift anyway, but you might want to gift it because there's a real need from someone in your family and coming to you, paul. Actually, I was going to say obviously, I think Richard touched on it before. People might have ideas about equity release and what it means. Some of them not all positive, what some of the barriers for advisors in offering this as a solution? Well, I actually release those two words, sort of instill fear in some people when it shouldn't because it is a solution, it's a financial planning tool. Um, and you know, we've, we've got lots of anecdotal evidence as to why people should buy these products. Would you like me to, you give some examples? So, you know, typical examples and anecdotal evidence is really powerful. Um, I've had clients who want to buy their daughter a house. Mm, she couldn't buy it herself. So the daughter was very happy. I've had a gentleman who couldn't get his mobility scooter into the boot of his car. So he had to change his car. So he could, in other words, he was, you know, he extended his area of operation if you like on his mobility scooter. I've had a lady, my old office used to be in a sleepy seaside town retirement area, bus stop right outside, had a poster in the window saying, you know, we can arrange equity release type products. And the lady came in with no teeth a few months later she came back to my office with some teeth and she said, you know, paul, thank you so much for doing that for me. I can now smile again now, I'm sorry, I refuse to believe that equity release could be ever deemed as something which isn't a solution to a lot of people's problems. And that's before we start on the let's buy a house with equity release because it's often missed and we can increase the purchase price considerably with using equity release. So just forget those two words being dirty words, they're not, these are solutions, financial planning for people at the latter end of their lives if you like. I think we see an increase in that post Covid as well. For example, you've got older people who have had 18 months away from their families and you know, or have been suffering from vulnerability. And uh, if I take my parents for example, I'd be very, very surprised if they ever want to go abroad again um with Covid and their situations, but for the first time ever, they're very risk of us. We've talked about, you know, do they invest in a holiday home, for example. Um and whether that's a holiday home that somewhere that they go and use regularly holiday or whether actually they look at somewhere that's closer to um sadly will probably be closer to my brother than it's closer to me because he actually lives on the coast. But you know, it's real life situations that people have suffered from. And the other one building on what paul said about buying a home helping first time buyers. We've just seen a situation where the mainstream market has had a huge, huge incentive in the stamp duty holiday that's gone now helped by is about to end. We know that the biggest challenge for first time buyers is affordability um and deposit. Um and you know, later life lending solutions are the prime reason um to help the Bank of Mom and Dad or the Bank of granny and granddad to be able to assist Children. Yeah, middle aged Children with being able to buy that buy their first time and you know, we were I think that will only increase more and more in particular, people wanting to do something to help so that the grown up child can see the benefit while the gift is alive. You know, being able to leave a living legacy to be able to help their family. I think the bank of Mom and Dad is now deemed to be the 10th largest lender. Mhm. It's a big, we have money and we saw the um in the statutory holidays key, we issue quarterly a document called market Monitor. So it looks at the state of the nation for equity release through Kia's, you know, the largest broker. And one of the, one of the things that we saw is that £1 million pound a day was being used for gifting for helping people to get on the property ladder. And that would only be first time buyers. And richard mentioned the first time by relevant. But I think you'll see a lot of sort of 2nd and 3rd time purchase as well because of the fact that you haven't seen a lot in the way of salary increases over the last few years, but the circumstances might have changed and so they need a bigger property now and an equity release potentially could help them find a mom and dad and granddad to actually get that forever home rather than that stopgap home. Um so I think, you know, you'll definitely see and picking up on paul's point about property purchase, you know, a lot of people don't realize you can use equity release for property purchase. And again, you know, we saw a significant increase in the stamp duty holiday of people using equity release for property purchase, I think outside of property, but focusing on family as well, you know, we're just about, we've just seen the end of furlough, we've seen entire industries that have been decimated by covid hospitality and probably being the most notable and I think sadly one of the outcomes of that is there will be a lot of older borrowers and wanting to help family for for less positive reasons, you know, really just to give financial support. So rather than wait until I guess inheritance that binds happening, what's the parents or grandparents are still still alive, I suppose. Yeah, that intergenerational lending, you know, while you're still here, because there's nothing, I'm sure paul seeing this with clients, but you know, we've had clients who have helped grandchildren and you know, we've we've had sort of reviews from them saying it was fantastic to see my my granddaughter in a first home, you know, we went around for some dinner, you know, and I guess there the other things that, you know, this market does, it enables people to, you know, do you know, give them that opportunity to actually, while they're still living to see their Children grandchildren getting on. One of the product providers came out with a really good throwaway line, she said um it's gifting with a warm hand and that sort of stayed in my mind because, you know, what could be nicer than for a grandmother to give away to their grandchildren. So they've got a chance and actually see the effect that money has on the grandchild while they're still alive, it's only difficult to argue with it and I guess just sort of moving on from that, what other options are available. I know we talked about some of the problems that people are facing and why they might use this, what other options are available and why would this, I guess stand out is the best option? Well, they could do nothing, they could move house that try and move house when you're in your seventies, eighties, nineties, not, not a good idea, um, possibility of retirement interest only mortgages where you, but you'd have to prove you can make the payments, so you're back into the same, you know, a lot of paperwork and probably disappointment at the end of the day, a limited marketplace. Um, what else could we do? I think there are, there are mainstream mortgage options for older borrowers, I think that they are gradually starting to develop, but, and we certainly need to see more, but there are solutions out there, I think, I think the key driver to all of this and ultimately becomes flexibility around how people treat income. You know, we've seen some great lenders come into the market, for example, who will use um surplus rental income, even Airbnb income where you've got an older borrow, who's not just taking in a lodger, but done so through Airbnb and has got a great property in the city centre or a great coastal location, coming back to that point of Jason made about people retiring differently. Um, you know, people have different ways of generating income and funding their lifestyle now, um, and that lending piece needs to become firmly part of that and there are a range of great solutions, I just think the awareness isn't necessarily out there across the whole piece for not just equity release, but all of those different types of lending solutions and I think the equity product itself has evolved so much in the last two years, um it's now so flexible, whereas you can now make repayments or 100% of the interest if you want to, so effectively you don't get the biggest objection to equity release, which is the compounding effect of interest that no longer applies because you can pay it For no charge, effectively, no redemption charge. So, you know, the products that are so much more flexible than they used to be. Yeah, yeah, I mean when I, when I came to work for key in 2016, I've been involved in the effort to release market many years before there was around 37, products on the market when I came into the market And that is over 750. So that growth of product solution for clients growth is significant, you know, a lot more flexibility as Paul's Paul said. Um and I think the great thing for that is it keeps consumer choice, you know, so they condition competition choice, looking at, you know, reducing interest rates, so we have some interest rates coming down. Um so it means from a consumer perspective, there's a lot more choice and and and that's gonna be great news because they can then look at their own with their advisor, you know, an expert like paul who can sit down with them and say, right, let's look across your whole scenario and actually you want to pay some interest, but not all the interest. Well, maybe then we can look at equity release for that. So it just gives people choice and I think that's gonna be a great customer outcome, from from my perspective and from an adviser point of view, I know if you had 750 options for something that's quite overwhelming, how should advisors go about looking for the right product or partnership even Portugal with uh we use a system called Air, which is a search system if you like, and we can input what our clients need and it comes out with a result basically, um, interest rates are really low at the moment for equity release, you could say, buy it now because you won't see it again. Perhaps, maybe not because it's relative. We've got the right tools to be able to come up with the right solution of the clients. Yeah, it's important. We get the right facts. Of course we need, we're very much more able to ask delving questions and really get to the number of what the client needs and be able to listen to what they need and on that I guess we've spoken a bit about where this is a really good solution. Is there any situation where this isn't the right solution? You know, where you find people not to do this? I guess? I think lots of situations where it's not the right solution. The key, the key thing is being able to have a dialogue with the customer and look at all of their options and be able to advise appropriately on the solution. So for me, I think the best advice is always going to be someone who can cut across all of the different product options. So for example, is able to advise on mainstream mortgages as well as equity release. They don't necessarily need to be a tax or an expert or a qualified I. F. A. But there should be at least having a dialogue with someone in the background around that as well. And similarly, if you've got an I. S. A. Or wealth planner, then they need to be speaking to someone who's a mortgage or lending expert. So it really does need to be holistic because there's so many different considerations too take into account from the impact of benefits, you know, long term care in the future. So, you know, it sounds very cheesy, but you have to have that total holistic view. And if you don't have the expertise in a certain field yourself, you are at least checking with somebody else to make sure that you can have absolute confidence that it's the right solution and get that good customer outcome. And again that you could have two people in exactly the same position in terms of their asset background, but because of their views or attitude to risk, the solutions end up being different. So it's very difficult to pigeonhole anyone and say, well that's going to be right for you. You just need to look across the piece at all of the different solutions out there and if it's an area that you you don't advise on yourself, then you know, make sure you partner with someone have a great partnership with someone that you know that you is trusted and someone that you feel comfortable putting your clients in front of, you know, to have that conversation because you know, the worst thing would be to not have that conversation because it's not an area that you're an expert. You know, you better to have a partnership with a trusted business, you know, like paul's business. Um and you know to have a conversation that says, well is this and you know, is this potentially an equity release or later life client? Now, what's your view on that and then sitting down with them doing the fact, find taking all the information on board and then coming up with a solution that's absolutely right at that time for that client. I think partnerships in this market are crucial and I know paul well, we'll probably have a view on the types of firms that he partners with them where they get a lot of their good client, but from a distribution perspective, we it simply be, is recognized the fact we needed to provide a solution to our firms of which paul and his business is one and we weren't an expert in equity release. So we've partnered with key to deliver a white label version of the air tool that paul's already mentioned. Um we will then have our firm's partner with lenders to add bringing their experience and their training capacity and value. And we will obviously add to that in our expertise from a different perspective, such as compliance in particular how to deal with vulnerable customers. But it really is about collaboration and partnerships because, you know, building on the point I made earlier about a holistic approach, no one is going to be an expert in every single area or very few people are going to be an expert in every single area. So you make sure that you've got those partnerships, whether it be introduced a level, whether it be at your support level, Yeah, the technology and the compliance services and so on and so forth. And then obviously in just that finding that ultimate solution as well on that port, there's any advisors watching who think this could be a really good solution to some of the clients that I work with, what do they actually need to do, I guess to be qualified to offer this. Right? Well, firstly they need to be qualified. That's the first thing to say they are qualification, secondly, I think it sounds daft, but they got to be interested in it. They've got to be interesting with working with older people and that's a different skill set to the run of the mill, mortgage, conventional mortgage work, conventional mortgages are really rate driven, whereas equity release advice is solution driven and there's a big difference and actually wrote these down. The it sounds, it sounds silly, but I wouldn't go and see a client for equity release advice dressed like this. I would be wearing a tie and it sounds maybe a bit tough, but I would, because those people respect the fact that they used to wear ties when they went to work and so did their parents perhaps. And it's important because otherwise you immediately on the back foot, it was very scruffy when this might be very scruffy to somebody when you came to see me. You see that's the first thing. The second thing is, and I think we talked about this earlier, in fact, Richard pay attention to detail. Very, a very small thing that somebody can say is actually the reason they want to buy it, but if you're not listening and paying attention, you'll miss it. Um my boiler is really playing up at the moment. I was it. Right, fine, You ignored it, You've missed it. The buying signal was that boiler because they need a new one. So it's important to really hear what people say, um, timescales in the conventional mortgage market, it's normally fairly cut and thrust. Let's get this job done. We need the mortgage off, we need an A. I. P. We need the solicitor to phone us back, we need blah blah. We need the employer to get those pay slips because we don't know where we are. The older generation working a much slower. This is not derogatory to older people by the way, but they do work in a much slower timescale. I quite often get colleagues of mine saying, I haven't heard from them yet. Well, wait, be patient, you know, they might want to talk to their Children or even their Children. So it's not gonna happen overnight. Be patient, learn something about the influences and worries aspirations older people have. I know I would ask the question, do you know what the state pension is? How much is it, how do you qualify for it? When do you get your bus pass? What is rheumatoid arthritis? It hurts but older people suffer with these things and I think you've really got to get alongside um what what older people are thinking about and if you can, I think you'll be very successful in the market place, but don't consider it residential mortgage sale because it definitely isn't that. And coming to you, Richard thinking of advisors, how should they position? There's two clients. So I think first and foremost, we've touched on the fact that equity release hasn't necessarily the name, hasn't got the best history and we've been very deliberate in branding our partnership later life lending in partnership with their And I think from an advisor perspective, it's focusing on the solution peace and actually presenting it as something that can that can help family tax and wealth planning and support lifestyle. Because ultimately, those are three things that customers will really care about. Their three things that professionals and introduces and we've touched on will have people within their client banks and their databases. They actually, yeah, we can answer that. If you go out and you ask a customer do you want to save on income tax or inheritance tax? You'll get 100% of people say yes. If you go and ask people do you want equity release? You probably get a lot of people that would say no. And that's exactly the solution that it provides. So it's just about how you position it with people in the first instance, I guess working with retirees and elderly clients, there is a worry about vulnerable clients and whether this is the right option for them, whether they know what they're buying, what exists to protect those vulnerable people, potentially key. When we're providing the Equity release advice, we have vulnerable vulnerability champions in our business to people who are specially trained to help identify that situation. You know, because obviously, you know, there will be vulnerability, you know, there's that there is a lot of vulnerability, especially post covid. So we have those champions to make sure that, you know, we are asking the right questions that we have the royal observations in place so that we can make sure that the client really understands, you know, what they're getting into. Um and then there'll be vulnerability checks as it goes through the process as well. Because obviously when the paperwork's done and submit to the lender will then have an ongoing dialogue with a client. So if there's anything that we hear from the client which doesn't quite ring true, that will also throw up some vulnerability concerns and partly equity release process is that you after an independent legal advice. So, again, when that solicitors having that conversation around, you know, what you're doing and why you're doing it again, that would be another check to make sure that, you know, does this quite really understand about the compound interest or you know, what is particularly means for them. So, I think there's, you know, it's important that you have all those kind of checks in place and have necessarily systems and controls in place is an advisory firm to ensure that, you know, you are looking after your clients just to add to that in terms of the support and should make a couple of distinctions first and foremost, firstly, not all old people are vulnerable and secondly, it's not only old people that are vulnerable in the last 18 months, I'm sure we've all felt vulnerable at some point, um whether it be physical health, mental health, financial woes, etcetera, etcetera, what we do it simply because we we we've we're working with a number of partners key being one, and again, comes back to that partnership and collaboration piece, you know, we're making technology available that helps our advisors identify vulnerable customers, but then also providing a huge, huge host of support in terms of training and assistance in dealing with it. And I think it does come back to the point that paul made about the advisers appetite, you know, you have to be the right type of person to be able to advise appropriately on this and you have to need to want to learn and grow because it is a very, very different uh the form of advice and I was gonna say sale then, I mean, ultimately there is a sale at some point because there is a transaction, but, you know, the vulnerable customers and point is probably the biggest example of the greater level of complexity within this. And that comes back to that first point that paul made about what older borrowers are most concerned about in there. You have death and death of a spouse and that's one solution that we can't fix, but we can provide all of the tools, training and support that actually helps people address that need because that's, you know, that's probably the biggest taboo that everyone's worried if you don't talk about that with your families even, but you know, all the different complexities and consistencies that then sit in with that. We also insist if we can where we can that uh, the client's spouse at least attends the interview and preferably the beneficiaries of the will, if it's possible because the beneficiaries to the will of the ones that are going to probably say, well, did you really do a good job advising my late mother on that plan? So we're very careful indeed. We get disclaimers signed if necessary. So you want to encourage them to be there, definitely. Yeah. And in fact, particularly the business came to us from a profession introduces such as an accountant or solicitor will insist they come as well if they can. And that goes down very well because people probably trust their accountants and solicitors more than us, maybe even that those problems itself, because you do you do get financial coercion and you sat sadly, families aren't always harmonious and you do get wrong ends that will, that will rip off their family. So I think we're very aware of of these matters. And again, if I can add that to my skill set, you know, have an awareness of the whole vulnerability scene and just keep an eye out for, you know, obvious trigger points for that. Yeah, and I think that's through the whole process, you know what I was saying earlier because initially you could see someone and think absolutely they're fine and then they, we could make a call to them around saying to do with the equity release cell and they could be like, I don't remember that, you know, so again, it's making sure it's not just at the beginning of the process that throughout the whole process that you're not looking for vulnerability but you're very aware that it might happen and just being aware of how to deal with it if it does happen given it's an area I guess where there could be potential issues, what tools are available to advisors to support them. So um again comes back for me to that partnership piece. So we've we've partnered with Key group and then in turn the air brand answers in retirement and that provides the sourcing tool that pulls already referenced, there is a help desk to help with case placing and point people in the right direction for a variety of solutions. We're working very, very actively with lenders to provide additional training and not just equity release lenders, but coming back to the RIO and the mainstream mortgage lenders and actually working on market developments. So for example, we've, we've already had a couple of lenders who have um looking at changing their proposition Um to be able to service more of these customers. So for example, that might just be raising the age that they do interest only two from 70 to 80. Again it will be covered by Riskmetrics and so on and so forth. We will um simply because what recognized in the market for the events and education programs that we provide, we've done two successful later life academies that were very very well attended. Jason spoke on both of them along with other industry experts and that's something that as we come out of Covid and were able to get back to proper physical meetings and we'll look to do a hell of a lot more of um and provide that additional education and support watching. That's all we've got time for. Thank you for joining me today. Thank you. Thank you and thank you for watching. Mhm. Mhm. Yeah. Right.