Equity Release rate 'lower than 'SVRs'

The average rate for equity release is considerably lower than the average standard variable rate for mainstream mortgages, equity release trade body Ship has claimed, reports Financial Adviser (24/5/07).

It calculates that the average rate of interest for the top 10 equity release providers stands at 6.39 per cent, while it puts the average standard variable rate for the top 10 mainstream lenders at 7.32 per cent.

Ship reported this 0.93 of a percentage point difference between rates had grown since it last made such an analysis in September 2006, which showed a difference of just 0.35 of a percentage point.

Jon King, chief executive of Ship, said: "This further research by Ship continues to counter critics' claims that equity release lending is prohibitively expensive and an option of last resort. Since April this year, the whole of the equity release market has become fully regulated by the City watchdog.

"Ship has also continued to campaign to raise the standards of advice available to consumers through calling for compulsory examinations for IFAs offering Ship members' products and issuing advice checklists adhering to a stringent code of conduct. With these rising standards and the low interest rates highlighted above, it has literally never been safer or cheaper to take out equity release."

SHIP asked to justify 'unexplainable' equity release redemption penalties

Safe Home Income Plans (SHIP), the trade association for equity release providers, has been urged to tackle 'unexplainable' early redemption penalties among providers, as an independent report into equity release has levelled further criticism at the sector, reports Mortgage Solutions (30/4/07).

The Defaqto study, Equity Release in the UK 2007, criticised the fact that several equity release providers do not tell customers exactly what their early redemption penalty will be, as they claim that it is impossible to calculate the figure in advance as factors including interest rates and money market swap rates are subject to change.

The report concluded that: "Clarity of terms should be a desirable feature and Defaqto expects this issue to be addressed by the providers concerned as they are attracting increasing levels of criticism."

Commenting, Jon King, chief executive of SHIP, said that despite the criticisms, it had no plans to address the subject. "SHIP never gets involved in this area, because this is a pricing matter. It is an advice issue, a question of matching the right product to the right client."

Robin Gordon-Walker, spokesman for the FSA, said Mortgage Code of Business (MCOB) rules made it clear that providers must state early redemption penalties as a cash value. He warned: "Lenders need to have regard to that rule – when there is a specific rule, it should be honoured."

It has been suggested that the problem could be addressed if the industry as a whole made a commitment to change their policy on redemption penalties.

SHIP reveals market growth

Safe Home Income Plans (SHIP) recorded a rise in new business of 7 per cent for the first quarter of 2007, reports Mortgage Solutions (30/4/07).

The twenty one members of UK equity release industry body, SHIP (Safe Home Income Plans), that represents over 90% of the Equity Release sector, reported record first quarter figures to 31 March 2007.

Overall Business Figures

The total number of new equity release plans sold in Q1 2007 increased almost 7%, year on year, from Q1 2006 (6,363 - 2006 to 6,785 - 2007) and highlights the fourth year of consistent growth. The total value of new business written reached £293.9 million, the highest Q1 figure to date, and contributed to an annual rolling year total figure of £1,169.2 million at the end of Q1 2007.

Home Reversions

Home reversions continued to grow strongly with the number of plans sold increasing almost 14% from Q1 2006 to Q1 2007 (363 – 2006 to 413 – 2007) and accounted for £22.5 million worth of new business.

Drawdown Mortgages

Whilst lifetime mortgages accounted for 94% of new business for SHIP members in Q1 2007, it was drawdown mortgage options that persisted in popularity. These plans accounted for 40% of all new equity release business in Q1 2007 compared to almost 20% in Q1 2006 and 7% in Q4 2005, when drawdown schemes were first introduced.

During Q1 2007 £92.9 million was taken from £198.5 million committed new business compared to £45.1 million taken from £87.0 million of committed new business in Q1 2006.

Increased interest amongst intermediaries

The number of equity release plans sold via intermediaries in Q1 2007 increased almost 17%, year on year, from Q1 2006 (3,368 – 2006 to 3,925 – 2007) and accounted for 58% of all new business. Such growth highlights a growing understanding of the equity release market amongst IFAs and the business potential it represents.

Jon King, chief executive of SHIP commented: “The number of new equity release plans sold in Q1 2007 represents a record first quarter for SHIP members when figures are compared year on year, with drawdown products clearly proving popular amongst consumers.

“The amount of business arranged through intermediaries, however, is also encouraging. With SHIP’s compulsory deadline of 1st August to hold a lifetime mortgage examination it is hoped that this growing proportion of business from IFAs will be matched with relevant and necessary advice for the consumer.”