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Baroness Altmann Rather Too Quick to Dismiss Dowd Report on Equity Release

Kevin Dowd 14 August 2018

Harvey Jones had an article in the 12 August Sunday Express on my Equity Release report, Asleep at the Wheel: The Prudential Regulation Authority and the Equity Release Sector, which was published last week by the Adam Smith Institute.

The article included some comments on the report from a number of experts, including Baroness Ros Altmann, David Cameron’s former Pensions Minister.

“I never read a book I must review; it prejudices you so,” said Oscar Wilde. If she has read the report, I see no evidence of it in her comments.

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Equity Release Council’s Response to Dowd Report Confirms its Central Message

Kevin Dowd 13 August 2018

I welcome the Equity Release Council’s response to my report, “Asleep at the Wheel: The Prudential Regulation Authority and the Equity Release Sector,” which the Adam Smith Institute published last Tuesday, 8 August. The ERC’s response confirms (I presumably, inadvertently) my central point that the industry are not valuing the No-Negative Equity Guarantees (NNEGs)1 in their Equity Release Mortgages (ERMs) properly, and their response does not dispute my second claim that the degree of under-valuation is material. Their response also suggests a remarkable degree of misunderstanding about the regulatory system – one suspects that they are a victim of industry propaganda.

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The ermpire strikes back

The equity release lobby has begun to respond to the Adam Smith Institute report. All the indications are they haven’t actually read it. Robert Sinclair of the Association of Mortgage Intermediaries has dismissed the parallel drawn between equity release and the Equitable Life affair, saying that Equitable Life was based on two different scenarios: they were invested badly and there were guaranteed annuities which they couldn’t afford to repay’. Did you say ‘guarantee’, Robert? The summary of the ASI report, i.e. the bit you don’t have to read very far to get to, says ‘This scandal is similar in nature to the Equitable Life scandal of nearly two decades ago – it involves the under-estimation of opaque long-term guarantees’.

Sinclair adds: ‘The risk is the gap between the current valuation and the longevity risk which is a judgement on how much house prices rise.’ He clearly hasn’t read either the ASI report, or the PRA’s own consultation document on equity release, CP 13/18, for neither is about risk management, but read on.

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