Advisers who fail to capture vital details warned
23 September 2015
Over-55s financial specialist Key Retirement today highlights the potential pitfalls within the equity release sector for those advisers, and their clients, who do not capture health and lifestyle information, and clarifies why "underwriting" every client is an essential part of the advice process.
Financial advisers are well aware of the benefits of health and lifestyle underwriting when it comes to annuities, yet the equity release sector appears to be failing customers when it comes to appreciating the benefits of underwriting clients for lifetime mortgages. Increasingly providers offer enhanced criteria for those with health or lifestyle issues including Aviva, more 2 life and Partnership.
Many advisers will only appreciate the benefits in terms of achieving higher LTVs for clients but are completely missing the benefits for those who want to guarantee inheritance.
By answering a simple set of health and lifestyle questions, which primarily only require yes/no responses, an instant decision is provided clarifying the LTV which can be achieved. Increases in LTV can be considerable as a result. For clients requiring higher lending levels this can prove essential, for example many customers needing the highest possible loan for interest only mortgage repayment. For those taking out a drawdown lifetime mortgage this will also provide a greater overall lending facility.
But Key believes that one of the major reasons that clients are not being asked the appropriate health and lifestyle questions is the lack of understanding around how an increased LTV can also provide an increased inheritance guarantee even if the higher LTV is not actually required to meet their target need.
The below shows an example for a client who has been underwritten:
| Property Value | £220,000 |
| Age | 65 |
| Loan Required | £35,000 |
| Normal Maximum LTV with Protection | 33% |
| Maximum Advance Available | £72,600 |
- Client requires £35,000
- This is 48% of the maximum of £72,600
- With inheritance protection this means that they can protect 52% of the property value (The unused proportion of available LTV)
- As a result of underwriting the client qualifies for an enhanced LTV of 40.4%
- Maximum Advance Available with enhanced LTV is £88,880
- The £35,000 advance the client requires is now 39% of the maximum available
- The client can now protect 61% of their property value for inheritance or a further £19,800 of the current value*
Dean Mirfin, technical director, Key Retirement, said, "Whether clients are looking to secure the maximum LTV or the best guaranteed minimum inheritance it is essential that they are underwritten. Advisers should be underwriting every client as the enhanced borrowing or availability of greater guaranteed inheritance may prove essential and needs to be explored with every client.
"The protected inheritance offered through underwriting appears to be overlooked by many who do not understand that this can be a direct benefit of the increased LTVs available. It is essential that all clients are provided with the full picture so that along with their adviser they can effectively review their needs and priorities against the widest range of options available. This cannot be done without capturing health and lifestyle details for every client."