Bridgewater Equity Release, the home reversion specialist, has today (18th August 2008) urged those intermediaries providing advice on equity release products to challenge any potential misconceptions they may have about home reversion plans and their suitability for different clients.

 

Through working with advisers at events such as its Breakfast Briefings, Bridgewater has been able to compile a range of arguments used by advisers against home reversions and show them to be misconceptions.  Bridgewater believes that challenging these views will help ensure clients receive the best advice and most suitable product for their needs.

 

Misconceptions held by some advisers include:

Does it not follow that if the home reversion is best value at the maximum, then it will be better value at all other amounts as well?  Lifetime mortgage providers calculate their maximum LTVs to ensure sufficient equity remains to cover the value of the accumulated interest over the likely term.  The ‘No Negative Equity Guarantee’ means that if they get this wrong the provider will certainly lose money.  To mitigate this risk, their assumptions including HPI, are likely to be cautious.  This cautious approach suggests that advisers and clients need to be careful regarding expectations that their house value will increase at a faster rate than the rate of accumulating interest.  The lifetime mortgage providers do not make that assumption.

 

A home reversion plan is a ‘front–end loaded’ plan where the costs are built in at the outset and so clear to all.  The lifetime mortgage is ‘back-end loaded’ i.e. the costs (interest) are added throughout the term and the final cost is only known at the end whenever that is.  What’s best for the client always depends on the client’s needs and attitudes, particularly their opinion on their lifespan and their attitude to risk.  If the client suggests they may not live more than five to 10 years then the ‘up-front’ costs of the home reversion may make it look comparatively expensive. However, where the client feels they could live another 20 or 30 years, and in fact medical science could extend anticipated lifespans even further, the up-front charges actually make a lot of sense.  From a risk point of view there is something reassuring about knowing the full costs at outset plus how much of the property they still have to draw upon and/or leave to their estate if they want.

 

A home reversion plan valuation must be undertaken by an appropriately qualified valuer, independent of the provider. Valuation reports for both home reversions and lifetime mortgages are fundamentally the same, the only difference is the way the valuation reports are viewed by the provider.

 

A number of pieces of research suggest this is not as big a concern with most clients as long as they are confident they have security of tenure. The only actual difference in real terms is the fact that the name on the deeds may change with a home reversion plan.  The rights of the client are the same whether a lifetime mortgage provider takes a first charge on the property or a home reversion provider takes ownership.  In both cases they have the right to use the property as their home until they die or move into long-term care and they are responsible for insuring and maintaining the property.  In practice, there are benefits to being a home reversion client in that the provider may be able to help find contractors to maintain the home and will provide advice on what does and does not need to be done to the property.  This can be reassuring and helpful to clients as they get older.

 

“We have spent a number of months talking to many advisers about home reversions, the benefits of the products and their suitability, especially in the current climate of house price falls. Time and again we are finding the same arguments raised about the product and the reasons why advisers may not be recommending them.  Putting these arguments together allows us to paint the real home reversion plan picture and gives advisers information to actively consider the reversion option alongside the lifetime mortgage.

 

“Bridgewater are working with advisers to show that home reversion plans are not just for those looking to release the maximum equity. They also provide the customer with a large degree of certainty about what they are getting up front plus clarity and reassurance that they know what is left and the remaining value of the estate is protected.  We urge advisers to challenge some of the ‘gut feelings’ they may have about home reversion plans and look at the long-term as well as the immediate needs of the customer. In today’s market, it is imperative that advisers review all the options available before making their recommendation.”      

 

For more information on Bridgewater Equity Release, visit: www.bridgewaterequityrelease.co.uk