Why the stock release could be the next big mis-selling scandal

Why the stock release could be the next big mis-selling scandal

The capital release industry has been focused on rebuilding its reputation since the 1980s and 1990s, before protections such as “no negative principal guarantees” were introduced and before the Financial Conduct Authority began regulating the industry in 2004.

Kevin Bailey, of financial adviser Wessex Investment Management, said he was concerned that “the proliferation of TV ads” from equity providers could encourage many homeowners with short-term financing problems to “lock up their property in a solution to long term that can be costly to correct.”

The Advertising Standards Agency said the number of complaints it received about stock launch ads doubled year-on-year in 2022. It told The Telegraph it expects to see an increase in such complaints over the next year.

Last year, the ASA censored a Responsible Living ad, accusing the provider of misleadingly suggesting that its share posting guidance was unbiased.

Some ads seem to be inspired by people’s cost of living fears. Key Later Life Finance is running a marketing campaign aimed at homeowners whose mortgage payments are becoming unaffordable.

Andy Wilson, a financial adviser, said that the advantage of this strategy would be to eliminate or reduce monthly payments. He said: “Where switching to a lifetime mortgage now could be particularly advantageous is for those who have interest-only mortgage redemption dates coming up, where they don’t have the money to pay back the loan.”

However, there are many homeowners with a conventional mortgage for whom unlocking the principal would not be a good idea, even if their payments increase. The lowest rate on a Key loan is currently 6.17%, lower than the average standard variable rate of 6.64%, but higher than the average rate on a five-year fixed-rate mortgage, which is of 5.39%.

Wilson said: “The interest rate is likely to be higher than the existing mortgage, which means more interest is charged for the same loan. This is independent of whether or not interest is paid voluntarily, since no payments are required.

Will Hale, chief executive of the release provider Key, said: “According to Mintel, 43% of adults don’t know that the release could be used to pay off their mortgage, and that’s what we want to address with our advertising.” .

He added: “Some seniors don’t meet affordability criteria or find that if they switch to their lender’s SVR, the new monthly payments are simply not manageable and they prefer to stay in their family home rather than downsize. The principal release gives them an option that includes the ability to earn ongoing interest, as well as ad hoc principal payments to prevent interest accrual.”

Dean Buckner, policy director for the UK Shareholders Association, formerly of the Bank of England, said ideally struggling homeowners would downsize to a smaller property and invest for better income, adding: high rates. “

Buckner said homeowners risked being sold loans that weren’t right for them. He said: “There is a temptation for financial advisers not to dwell on these aspects, and providers need to think carefully about how future regulators might see this as a mis-sell.”

The Equity Release Council, which is responsible for upholding good practice in the sector, said the share release sales process is “one of the most scrutinized in retail financial services” and proof of this is that many people choose to not following through with a plan. .

Chief Executive Jim Boyd said: “Lifetime mortgages have been regulated for as long as residential mortgages, and both products use fees to help reduce the fees people have to pay to access advice.

“There are stronger protections for lifetime mortgages than for residential mortgages, including independent legal advice that specifically ensures that customers are not under any external pressure to sign up.”

The FCA is currently scrutinizing the share launch market to ensure it is working in the best interest of consumers.

An FCA spokesperson said: “We know that during the cost of living crisis, consumers may be looking for ways to use the equity in their home to meet their financial needs now.

“We are already looking at advice given by release firms with a particular focus on lifetime mortgages and will be raising it with firms where we see the firms are not providing good quality advice.”

An Age Partnership spokesperson said: “High standards of advice remain crucial to ensure clients receive the best solution for their individual needs. We record all interactions with our customers and have done so for several years. This allows for ongoing monitoring and training on topics like cost of living, interest rates, and loan repayments.”

It added that the remuneration of its advisers is “based on salary and focused on the standard of advice” and not on the size of the loan.

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