Too many advisers have become “overly bullish” on house while predicting future house prices, resulting in clients being advised potentially unsuitable lifetime mortgage products, warned Home Reversion specialist Bridgewater Equity Release.
Clients that are being recommended lifetime mortgages may opt for them based on their adviser’s ambitious assumptions, Bridgewater cautioned, saying it’s concerned by the trends.
A common prediction is to assume eight to nine percent of housing price growth based on periods such as the 1970’s when there were substantial wage and inflation growths, an analysis by the firm showed.
The prime multi-million dollar London market is the only area to have witnessed eight-to-nine percent price growth, and is often cited by advisers failing to mention that the demand is often driven by international buyers, the Bridgewater study found.
The firm cautioned that over the past couple of years and during the next five years, clients of lifetime mortgages are likely to witness their debts building up considerably, while house prices growth may fail to keep pace and achieve moderate growth at best. This will reduce their chances of equity release substantially in the future.
“This bullish assumption tends to be based on an analysis of the last 40 years which takes in the massive wage and retail price inflation rises seen in the 1970s,” said Peter Welch, head of sales and distribution at Bridgewater.
“This period completely distorts the house price picture and to suggest that prices are going to continue to rise by anything like the levels we saw immediately pre-credit crunch to us seems ludicrous,” he added.
He was consistently told by many equity release advisers that eight to nine percent property price growth is the way forward in UK, and hence lifetime mortgage products are the most suitable product for their clients seeking, as accumulated interest burden will be less than home price appreciation.
“These false assumptions of house price growth by advisers could spell real difficulty for those clients who are recommended and sold lifetime mortgage products,” warned Mr. Welch.
“We would urge all advisers who are overly bullish on house price growth to revisit their own analysis of the situation and to make sure they provide a transparent and unbiased view to clients on where the price of their house is likely to move in the short, medium and long-term,” he added.