Prudential withdraw from equity release, but all is not lost

There was disappointing news this week when Prudential announced their withdrawal from the equity release market from early 2010.

Their stated reason for ending their four year stint as a lifetime mortgage lender is that “a significant cash expense is incurred up front in acquiring new business and the payback period on capital employed is long. We have concluded that this is not sustainable and that we can deploy cash and capital more effectively across other parts of our business”.

Their market share was 12% in 2009 of an estimated £1bn market so another interpretation could be that £120m of lending isn’t worth the effort and, as a multi-national colossus, they can make more money elsewhere. Those who think the only winners in equity release are the lenders may need to think again.

It is worth bearing in mind that Prudential have form for this behaviour. They once pulled out of the protection market leaving clients and advisers high and dry. At least on this occasion they have given some notice and will continue to service their existing 14,000 customers.

Prudential is by far the biggest name on a list of lenders who have pulled out of equity release in recent times. With the exception of Northern Rock (who had a notional presence since their fall from grace in 2007) and National Counties Building Society, most of those were relatively new to the sector.

So the credit crunch has crunched hard on the equity release sector this year but it is not all doom and gloom.

Vanessa Owen, head of equity release at LV=, says: “We’re a little surprised at the Prudential’s move and believe it could turn out to be a missed opportunity for them. We see this market as a growth area and LV= is still committed to offering equity release.”

Just Retirement have stated that Prudential will have no bearing on its position or strategy within equity release and that the company “remains fully committed to this market for both its profitability and long term growth characteristics.”

Hodge Lifetime and Stonehaven have made similar statements.

Those that remain in the equity release market stand to make the most of others’ absence.

By David Wright
Managing Director
Sixty Plus - The Equity Release Specialist

Equity Release borrowers get benefits boost

The Government has made a number of changes to the benefit rules that may reduce the impact that equity release could have on means tested benefits.

Andrea Rozario, director general of SHIP, explained: "Over the last nine months, the Government has announced changes that we believe will mean that those consumers who wish to take out an equity release plan can do so in the knowledge that they may not see certain benefits reduce or cease all together.”

The Government has changed the rules on the application of an Assessed Income Period rules (AIP) within Pension Credit for those aged 80 years old or over. From April 2009, these customers will no longer have their retirement income and assets reviewed every five years, nor do they need to report any changes that occur to these. In effect those aged 75 and over, if in an AIP will benefit from this change.

They have raised the capital threshold to £10,000 in Pension Credit and pension age Housing Benefit and Council Tax Benefit from November 2009, which means that pensioners can have up to £10,000 in savings without it affecting their benefit. If pensioners take out an equity release product and overall their savings remain at £10,000 or below, there will be no impact on their benefit payments.

David Wright of Equity Release Specialists Sixty Plus said “State benefits have always been one of the important matters to consider when looking at equity release so it is good news for everyone that the savings limit has been increased.”

Independent advisers accounts for 74% of all equity release plans sold between July and September, according to figures from SHIP, reports Mortgage Strategy.

The adviser share of the equity release market has climbed 10% since the three months to June, continuing the recent trend for brokers to account for the majority of equity release business.

The equity release market is down 22% against the same time last year when total lending was £303.3m.

The number of new equity release customers dropped by 2.5% quarter-on quarter from 5333 to 5198, and has dropped 35% on an annual basis.

Average amounts lent through equity release increased by 3.9% in Q3 to £45,434, compared with £43,746 for the previous three months.

Andrea Rozario, director-general of SHIP, says:“The drop in the number of plans sold can be partly attributed to the funding issues that the industry is currently facing.

"While equity release providers are experiencing high levels of customer demand, a significant impact on the quarter’s business figures has been the lack of liquidity in the overall market which has restricted the lending activity of some providers and resulted in the withdrawal from the market of some others."

Sixty Plus Comment: It is pleasing that customers are becoming more aware of the importance of independent advice.

Research key to good equity release advice, says ERSA

The key to good equity release advice is thorough research of the products on offer, according to the Equity Release Solicitors’ Alliance, reports Mortgage Strategy.

Members of the equity release legal trade body have ranked the aspects of advice equity release advisers need to focus on in order to ensure a high standard of advice.

Comprehensive research of all the providers, plans and products available was ranked as one of the most important features of good advice, after the legal requirement of specialist equity release qualifications.

Clarity of advice and the need to discuss alternative options to equity release from the start were also earmarked by ERSA members as essential factors in good advice.

Claire Barker, chairman of ERSA, says: “After the mystery shopping report from Which?, IFA advice has been placed under the spotlight. While many IFAs offer exceptional advice to clients, some are clearly not so thorough."

“Alongside financial and medical considerations for each client, no categories could be deemed ‘unimportant’, and we feel that some aspects simply cannot afford to be overlooked if clients are to feel informed about their decision before seeking specialist legal advice.”

Equity release shifting to independent advisers

The withdrawal of Newcastle Building Society from equity release illustrates a move towards independent advices, says Dean Mirfin of Key.

"In this climate, there has been a shift away from direct salesforces. Consumers prefer to get independent advice" he said.

Newcastle is closing its Equity Release Service by the end of the year. In Retirement Solutions shut its doors in August.

David Wright of Sixty Plus said "In my view independent advice is by far the best way to obtain equity release advice. Going to a tied or multi-tied adviser means getting the best plan for you is down to luck rather than judgement."

Godiva Mortgages to pull out of Lifetime Mortgages

More unfortunate news, Godiva Mortgages are withdrawing their Lifetime Mortgage from next week.

Interestingly this is not because of a lack of funds but "it is now difficult to offer a long-term rate which we believe is fair to customers". In other words, they have a choice to increase rates or pull out.

They've chosen to pull out because they can make more profit on mainstream lending - my interpretation of course.

This challenges the perception of Equity Release being too expensive. Although the bank base rate is only 0.5%, the cost of funding Lifetime Mortgages - which are fixed for life unlike mainstream mortgages - is no cheaper than it was a year or two ago; indeed some rates have crept up over recent weeks.

By the way, existing customers with a Godiva Lifetime Mortgage are not affected and Godiva hope to return to the market in the future.

In Retirement Services enters administration

Following the closure of In Retirement Services, their Equity Release advisers will be seeking new opportunities.

We at Sixty Plus are building a growing team of advisers and we welcome enquiries from any specialist adviser looking to continue their Equity Release career.

Please contact David Wright on 020 8393 5566 for a discussion in confidence.

Parental equity could help first time buyers

The mortgage industry should look into developing products that allow first time buyers to tap into the equity locked in their parents' homes.

This was the conclusion of research by Peter Williams, executive director of the Intermediary Mortgage Lenders Association, for the Building Societies Association.

This is an interesting point and, of course, the products for this already exist - equity release.

Indeed, with first time buyers typically being in their mid to late twenties, it may be that their parents are in their fifties and perhaps too young for equity release.

Grandparents may be the ones more likely to consider equity release to help their family onto the property ladder.

IFA, mortgage brokers or solicitors should contact me if they wish to discuss the possibilities.

Which? under fire for equity release comments

The Association of IFAs (AIFA) has criticised consumer watchdog Which? after it hinted its report into the quality of equity release advice given by intermediaries will be far from glowing, reports IFA online.

Chairman John Gummer MP says Which? "talks as though IFAs behave badly naturally", adding he disapproves of its suggestion equity release should be a last resort.

It follows comments made today at a debate hosted by solicitor Eversheds and trade body Safe Home Income Plans (SHIP).

Speaking at the event, Which? spokesperson Teresa Fritz said the consumer body was in the process of conducting a mystery shopper exercise on a number of equity release advisers.

Although Fritz pointed out the study is still at an early stage, she admitted early results suggest a poor level of advice, with conduct of business rules ignored.

But Gummer hit back: "Which? talks as if we in the industry are a group of people that behave badly naturally.

"I do not like its statement equity release should be a last resort. It is an option that should be considered carefully. We do not want to frighten off people for whom this is the best option."

Gummer adds while intermediaries provide a good standard of advice, they cannot force clients to follow it.

Base Rate Collapse Cuts Pensioners’ Income By Nearly A Quarter

The slide of interest rates to historically low levels has seen more than 8 million pensioners’ monthly income fall by nearly 25% over the last 12 months, according to figures from SHIP (Safe Home Income Plans), the equity release trade body.

SHIP’s figures show that, in April 2008, the average pensioner received £158 per month from their savings. This was in addition to their pension and accounted for 28.62% of their total income.

The fall in base rate has seen that income slide to just £16 per month, or 4% of their total income.

With perhaps little chance of bases rates rising to last year’s levels soon, pensioners need to consider alternative sources of income. On such possibility for homeowners is equity release.

Equity release can offer a real solution to pensioners’ problems. For example, a 75 year old woman with a property worth £300,000 could release up to £900 per month for 15 years. This would more than cover her loss of income.

“One solution for those pensioners needing to boost their income is equity release. The over 60s can release some of the wealth tied up in their property and increase their retirement income substantially should they wish” said Andrea Rozario, Director-General of SHIP.

Equity Release and the Credit Crunch

It seems impossible to turn on the TV or radio without hearing of doom and gloom of the credit crunch, falling house prices, rising unemployment and ailing banks.

So, how has this affected Equity Release?

Perhaps less than you might imagine.

All of the major Equity Release providers are still very much around.

Whilst a few companies have withdrawn from the market, it is fair to say they were bit part players anyway.

Most Equity Release plans are lifetime mortgages and here we have seen little impact. You can release pretty much the same percentages as before.

Although the Equity Release sector appears to be more resilient than the mortgage market, it may be affecting some potential clients.

It seems that some people are standing still, even it they’re not quite sure why. The constant bad news makes them uncertain. Uncertainty breeds inactivity.

Is this the right approach?

Possibly not. With the cost of living ever rising, the need for Equity Release is greater than ever.

Drawdown plans

Our typical client uses Equity Release to provide a certain amount for today with a drawdown facility they can call upon in the future.

For example -

In 2007, Mrs Jones was 70 years old and wanted £30,000 from Equity Release plus the facility to release more if she wants to in the future. Her house was worth £300,000.

She could have released the £30,000 and have a further £60,000 to drawdown in the future as and when she chooses.

Now in 2009, having delayed taking Equity Release her house is worth £250,000 and she is 72.

She can still release her £30,000 but the drawdown facility has reduced to £50,000.

So the total amount available to her has reduced from £90,000 to £80,000 – this makes no difference to her current plans – she can still have the £30,000 she needs now with the facility for plenty of extra money for the future.

Introducing Chris Grenan

Sixty Plus are delighted to welcome Chris Grenan as Business Development Manager.

Chris has more than 30 years experience in financial services and will be developing relationships with IFAs and solicitors as well as arranging seminars with interested groups.

David Wright, Managing Director, said "Chris joins us at a time when economic woes are constantly in the headlines. However, Equity Release is proving more resilient than other sectors and we are optimistic about the coming year."

We aim to make Sixty Plus a major name in Equity Release in the South East and we believe relationships with IFAs is key to this aim. With advisers in Surrey, Kent and Essex we are well placed to cover the whole region."

Chris can be reached on 07949 949590 or click here to email Chris.

ERSA formally launches

The Equity Release Solicitors’ Alliance (ERSA) has formally launched today, with each of the body’s members committing to a charter outlining their promise to provide independent, personal level of service in plain English, reports Mortgage Solutions.

Other commitments include that clients will receive a personal consultation, fair and balanced reports in writing, service level agreements, and all members will offer a no-completion, no fee service. For IFAs, ERSA also guarantees that intermediaries will be paid their fees on the day of completion.

ERSA is a group of established law firms which specialise within the area of equity release, which has joined together to promote the need for homeowners to have access to independent, competitively-priced expert legal advice before they take up an equity release plan.

Claire Barker, chairman at ERSA, commented “If current predictions are correct, the equity release market will double in the next five years, and by 2016 it is estimated that 42% of the population in England and Wales will be eligible to take out an equity release plan. With the market expected to grow at such a rate it is essential that all of these consumers are receiving the best possible legal advice before proceeding with a plan.

“Solicitors have to remain independent to ensure that homeowners only take out an equity release product once they have carefully considered the pros and cons of going ahead from an unbiased third party. This will also help to ensure that the future reputation of the industry remains intact.”

Sixty Plus comment: We welcome this development as independent legal advice is integral to the process of arranginging an equity release plan. It will help us to demonstrate to clients those firms that are as committed to equity release as ourselves.

Sixty Plus joins 'Buy with Confidence'

We are pleased to announce that Sixty Plus has been accepted into Surrey Trading Standards' Buy With Confidence scheme.

All the businesses in the scheme have been vetted and approved by Trading Standards to ensure that they operate in a legal, honest and fair way.

"We are keen to go the extra mile to show potential clients that we are the people to see for honest, independent advice on Equity Release." said Managing Director of Sixty Plus, David Wright.

Equity release remains resilient

Equity release suffered a 9 per cent decline in value of lending and 4 per cent fall in plans sold in 2008, according to Safe Home Income Plans, reports Financial Adviser.

In its full year results to 31 December, Ship said despite the drop in lending, equity release was remaining resilient compared with mainstream lending which, according to the Council of Mortgage Lenders, declined by 30 per cent during the same period.

The results showed the total value of equity release business written in 2008 reached almost £1.096bn, a 9 per cent decrease on last year's figure of £1.21bn

The number of new policies sold declined 4 per cent, from 29,293 in 2007 to 28,224 in 2008.

Sales of lifetime mortgage products dropped by 2 per cent year-on-year, from 27,764 plans sold in 2007 to 27,161 in 2008.

Meanwhile, the value of advances from lifetime mortgage products fell by 8 per cent from almost £1.128bn in 2007 to £1.038bn in 2008.

Home reversion products saw a decline in 2008, with the number of policies down 30 per cent to 1063, compared with 1529 in 2007.

The value of equity released with these products also declined 30 per cent from £82.6m in 2007 to £57.4m in 2008.

Almost two-thirds of products sold in 2008 were through intermediaries rather than through direct sales, something that remained unchanged from the previous year.

Andrea Rozario, director general of Ship, said: "A slight decline in business volumes in 2008 was to be expected given the turbulence in the economy in the last 12 months.

"Overall we are pleased with how the sector has held up, especially in comparison to mainstream mortgages."

Providers tip upswing in equity release market

Confidence in the equity release market remains high, with over 90 per cent of providers optimistic about the outlook for new business in 2009, mainly due to interest rate reductions, reports Financial Adviser.

Equity release providers have a measured confidence in the growth of the market for the year ahead, according to research from equity release trade body Safe Home Income Plans (Ship).

In the fourth annual Ship member survey, over 90 per cent of providers said the volume of new business would increase in the next year.

Looking to the long term, the general predictions given were that the market would grow by over £200m a year, increasing to £1.4bn in 2009 and £1.7bn in 2010.

Over two thirds of providers (67 per cent) felt that a strong driver for this growth would be interest rate reductions on equity release plans in the next quarter.

The research found that the majority of lenders predict most growth to be in flexible drawdown options.

Providers believe that drawdown will account for 70 per cent of the market by 2010, with 80 per cent of respondents pushing for more providers to offer a drawdown option.

Less than half of those polled (42 per cent) think that the lifetime mortgage business will increase in the first quarter of 2009, and in a departure from the 2008 predictions, 83 per cent think the number of home reversions sold will decrease or remain static in this period.

This market growth will offer IFAs real opportunities during 2009 - 89 per cent of providers have already seen the number of referrals from IFAs increase in the past year.

Andrea Rozario, director general of Ship, said: "The wider economic situation means that 2009 will be an unpredictable year. Many repercussions from 2008 will continue to be felt across the industry as a whole.

"This survey has shown that Ship members remain confident in the future of the equity release market, as they consider the long term prospects.

"The jump in the number of IFA referrals to providers shows that although there is still a need to educate IFAs about the benefits of equity release, the industry is coming together to recognise and promote the benefits of equity release."