Equity release market to reach £2.4bn by 2013

The equity release market is likely to be one of the few sectors to actually benefit from the economic downturn, and is expected to double in size to £2.4bn by 2013, reports Financial Adviser.

Due to the current economic turmoil and its effect on retirees' savings, the equity release market will probably see a boost over the next few years, Norwich Union claims.

Combined with the endemic lack of retirement funding, the potential entry into the market by high street banks and building societies, and the Government emphasis on 'self funding' for retirement, the market is predicted to grow to £2.4bn by 2013.

This would be double the amount released in 2007 (£1.2bn) and would see more than 1.5 per cent of UK over-65 homeowners using these products each year to increase their income and enjoy a better standard of living in retirement.

The provider has estimated that 115,617 consumers are due to purchase 70,500 plans in 2013, which is a clear indication that as the population ages and the retirement funding gap grows over the next five years, equity release will become increasingly important.

Anthony Rafferty, head of marketing for post retirement at Norwich Union, said: "While the economic turmoil has been hugely detrimental to many parts of the UK economy, it may actually stimulate growth in the equity release market.

"Going forward, we see the market doubling over the next five years and truly coming into its own as a mainstream retirement planning and funding tool."

SHIP providers buck market trend

Equity release trade body Safe Home Income Plans (SHIP) has revealed that business volumes produced by its members in the second quarter of the year have increased by 14% over volumes in quarter one, reports Mortgage Solutions.

A total £275.7m of equity was released by SHIP members in the second quarter, 14% higher than the £242.7m released in the first quarter.

Andrea Rozario, director general of SHIP, said results underlined the robust health of the equity release sector despite the impact of the credit crunch that was having such a negative effect on the mainstream mortgage market. She explained: “It also serves to highlight the distinctly different forces that drive the equity release market relative to the mainstream market, including the fundamental pressures of the UK’s ageing population, falling levels of pensions contributions and the very high levels of personal wealth held in housing equity.”

SHIP said that in terms of distribution, the intermediary channel continued to dominate, although the percentage of total equity release business carried out relative to the direct channel fell slightly from 74% in the first quarter of 2008 to 71% in the second quarter.

Equity release and the credit crunch

How is the credit crunch affecting equity release?

Product wise, not at all. There are no signs of any providers being short of money or changing their products.

As for potential clients, the impact seems to be more significant.

It seems that some people are standing still, even it they’re not quite sure why. They see constant stories in the media about falling house prices, rising costs of petrol, electricity, gas and groceries. Uncertainty breeds inactivity.

Maybe they are thinking “Things are uncertain and I don’t feel confident, so I will hold off doing anything.”

Is this the right approach?

Probably not. With the cost of living always rising, the need for equity release is greater than ever.

If the concern is about falling house prices, then the situation may get worse before it gets better. In which case, delaying action for a year or two may reduce the amount clients can release.

People should only take action that they feel confident about, but it is important to remember the guarantees that equity release plans from SHIP members provide.

Furthermore, with plans available that guarantee a proportion of the property can be protected as an inheritance, there is a strong case to be put for not letting the current concerns cause a delay in action.

Equity Release Solicitors Alliance is launched

The Equity Release Solicitors' Alliance was officially formed last week with six founding members, reports Mortgage adviser (11/6/2008).

The alliance, consisting of Ashfords, Birchall Blackburn, Equilaw, Goldsmith Williams, Gywn James and Lees Lloyd Whitley, will meet regularly to discuss issues impacting on the equity release market place, particularly from a legal perspective.

Claire Barker, chairman of Ersa and partner with Equilaw, said the founding members would meet regularly to debate industry issues and work together to ensure financial advisers had access to lawyers who shared the same vision.

The alliance will be an incorporated body with its own logo and website and members will abide by the terms of a written constitution.

Ms Barker said the group hoped to form affiliations with trade bodies, such as Safe Home Income Plans, the Law Society and the Association of Mortgage Intermediaries.

She said: "I am delighted to form an alliance with five like-minded firms to show that there are solicitors out there who have taken the bull by the horns and are committed to equity release as a specialist area of legal practice."

David Wright, managing director of Surrey-based advisers Sixty Plus, said the alliance was a good development in the equity release industry and he would like to see something similar set up for advisers.

Sixty Plus calls for change to ERCs

We would like to see all lifetime mortgage lenders relax their policy on early redemption charges.

Currently ERCs are waived in the event of a client dying or entering long term care. They are also waived on partial repayments due to downsizing. However, they are applied if the client does not port a certain amount of the lifetime mortgage and instead repays in full.

When a client expresses a possible future intention to sell their property and repay the whole plan, several lenders are impossible to recommend because they have ERCs that range from 0-25% subject to interest rate or gilt movements. Their products may be otherwise perfect for the client but we have to exclude them from.

In reality many of these clients may never sell but they want the option without the threat of a potentially huge penalty.

A change would be in everyone's best interests. It would give the lender more business and give clients more choice.

David Wright

SHIP floats exam table

Safe Home Income Plans (SHIP) has produced a qualification requirements table for intermediaries, reports Mortgage Solutions (17/3/2008).

The table, which is available on SHIP's website, lists the examinations needed to submit lifetime mortgages and home reversion plan business to SHIP's product provider members from 6 April.

Andrea Rozario, director general of SHIP, said the table had been produced to clear up any potential misunderstandings ahead of its deadline for advisers to pass their top-up exams. She said: "Confusion about the compulsory examinations needed by advisers for each aspect of equity release might have arisen as a result of Lifetime Mortgages and Home Reversions being regulated at different times."

Simon Smith, IFA at Independent Retirement Strategies, said a clarification of examinations would clear up any questions from brokers. He said: "Brokers need to know what they can and cannot advise on."

David Wright, managing director of provider Sixty Plus, said the table looked like a concerted effort by providers and bodies in equity release to provide more information to the market. He added: "Moves like this should increase trust and take up of equity release."

Abbey research hints at equity release launch

Abbey has reportedly been cancassing intermediaries regarding a potential launch into the equity release market, reports Mortgage Solutions (15/03/08).

This would not be the first time Abbey has dabbled in the equity release market, having previously joing SHIP.

Abbey also has a toe in the market through Stonehaven, although this is only a funding arrangement.

Godiva rides into equity release market

Godiva Mortgages, the intermediary arm of the Coventry Building Society, has entered the equity release market with a range of lifetime mortgages.

The range includes lump sum and drawdown products and Godiva is the first lender to offer an option with no early repayment charges.

Colin Franklin, managing director of Godiva Mortgages said: "I am delighted to be entering this growing market. Changing attitudes to retirement planning and increasing confidence in the sector, shows there is a genuine need for this type of product.

"For the first time, advisers will have access to drawdown and lump sum products without ERCs – a major step forward in the market place."

Sixty Plus comment: This is the most interesting development for some time. As the first lender to offer a product with no early repayment charges Godiva is a welcome addition. Some clients take equity release with the clear intention or repaying it in the short to medium term by moving house and downsizing. The absence of an early repayment charge that would normally be at least 5% will make equity release more appealing to some.

IFA sales up while direct business drops

Intermediary sales rose 25% in 2007 according to figures released by trade body SHIP (Safe Home Income Plans).

Sales through intermediaries rose from 14,799 in 2006 to 18,531 in 2007.

Meanwhile there wasa drop in direct sales from 12,973 to 10,762.

Overall business increased by 5.5% in the number of plans and the total value rose 5% to £1.21bn.

These figures were held back by a disappointing 4th quarter when the total value of business written fell by 9% on the corresponding period in 2006. However, this compares favourably to a 12% drop in gross mortgage lending by all mortgage lenders.

Sixty Plus comment: It is pleasing to see direct sales fall from 46% to 36% but this still means that more than one in three clients go direct to a product provider for equity release. It is our view that clients will only get the best plan for their needs by luck rather than judgement if they choose this route and that independent advice is essential when considering equity release.

Home reversion set for 2008 boom

Home reversion has been predicted to be a major sector of growth in 2008 and equity release brokers advising on only lifetime mortgages must take steps to enter into the market, it has been claimed, reports Mortgage Introducer (19/1/2008).

Dean Mirfin, business development director for Key Retirement Solutions, stated that 2008 would be the year that home reversion came into its own, but added that much of its growth, and that of equity release would be dependent on how the housing market performs over the coming year.

Mirfin said: “In a pessimistic climate, home reversion is the more popular option. Advisers need to be advising on both options, not just one. To restrict what you can offer a client doesn’t make any sense. We know there are a lot of brokers that have never sold a home reversion.”

He added that it made sense to take the home reversion exam, as equity release advisers were obliged by the regulator to discuss all options with a client anyway – even if they were not qualified to arrange a home reversion plan.

The regulator will require advisers to have a home reversion qualification by April 2009, yet advisers will most likely be forced into it a year early with Safe Home Income Plans’ requirement of the qualification beginning from April 2008.

Equity Release draws younger audience

Research has revealed the age of retirees turning to equity release has fallen significantly for the first time, prompting commentators to suggest more people are retiring with insufficient pension provision, reports Mortgage Solutions (21/1/08).

Results from Key Retirement Soluntions' annual Equity Release Market Monitor showed the average age for pensioners seeking equity release dropped from just under 70 in 2006 to 68 last year.

Speaking at its equity release roundtable event, Dean Mirfin, business development director at KRS, said the drop in the average age was more significant than it looked at first glance. He added: "We expect the average age seeking equity release to creep lower and lower."

Stuart Wilson, managing partner of Equity Advice, agreed the average age was dropping, suggesting it could have "ramifications" for the market in the long term. He said: "If you look at the generation taking out equity release today, many have been with their employers for 30-odd years and have final salary pension schemes to rely on. The generation that will come into the equity release market in 20 years' time no longer has that."

Wilson added: "There will be a huge issue with pensions for the future generation."

Andrew Dixon, marketing and sales manager at Bridgewater Equity Release, said people were now retiring with less capital available to them, adding: "This is one of the main reasons why equity release is going from strength to strength."