By Tom Murray, Head of Product Strategy for LifePlus Solutions at Majesco.
According to information released from the FCA, less than 4% of advisers give advice on the options for equity release in any quarter. Given that the majority of their clients are property owners and therefore have a significant amount of their personal worth tied up in their home, this seems to show a marked reluctance on behalf of the general population to consider tapping into that wealth. Maybe the current surge in house prices, with prices in England rising 10.2% in the year up to March 2021 as reported by the Nationwide Building Society, will at last make this product more significant in the solution for those approaching or in retirement and considering care issues that might be arise in the future.
With the Government endlessly promising to introduce a proper policy for long-term care and endlessly postponing grasping the nettle, the pressure is on individuals to provide sufficient funds for themselves in order to have sufficient money put by, in case the need for major expenditure on care arises. Education about the costs of care and the ways to provide for it is key to this and therefore far more advice about using property wealth as part of the solution should be given to the client by the financial adviser.
For many elderly people, owning their own home gives them a sense of security that they are wary of letting go. Some of the fear of equity release plans comes from a misguided idea that they could lose their home and the security that comes with it. The fact that they are in no danger of being put out of their home via an equity release plan while they are alive needs to be emphasised more.
Equity release plans are central to enabling the elderly to tap into their wealth in order to pay for any care costs. They can be difficult to arrange once the care is needed, as the individual is at that stage incapacitated to some extent. Therefore the ideal approach is to put a plan in place at an earlier stage and draw upon it when necessary. This makes it easier for the individual to control the pace at which the equity is released.
Providers of equity release plans need to make sure that it is not a major event to draw down the money. Currently, there is often a minimum amount that has to be drawn down, which means that often people have to draw down more than they want to. This can make them feel uneasy, as they are effectively taking out a much larger loan than they needed or wanted.
This is where the use of digital technology by the providers could increase the attractiveness of equity release plans. The use of digital adviser technology to facilitate both direct advice and adviser led advice to those seeking to equity release plans would be very effective. Allowing customers to manipulate the plan options to allow them to try out what-if scenarios and see the effect over time would help them understand the plan and feel in control of their money.
Digital portals to allow the client to access their equity release plan will give them full control over the level and rate of drawdown. It also allows them to monitor the level of debt that is building up and project how much is likely to be left in the event of their death or committal to long-term care, facilitating their ability to plan their finances.
Greater use of digital portals would also reduce the costs of transactions and would therefore enable drawing from the plan more frequently and at much lower levels than is currently possible. This would ensure the plan owners can draw down the exact amounts they want, when they want it rather than taking it in larger chunks dictated by plan rules.
With so much of the UK’s wealth tied up in property, equity release products need to play a much larger part in solving care issues than they currently are. And one of the key factors in helping that happen would be a more customer-centric digital approach to the sale and service of the product.
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