The ‘credit crunch’ has been all-encompassing, dominating the news and business agenda since the problems first surfaced in the middle of this year.
We may yet still see further impact as the continued tightness of the market causes further fallout. It’s likely that very few will be untouched by this ‘crunch’ which is why it will continue to be the talk of the town for the foreseeable future.
Unfortunately, not one of us has a crystal ball which can tell us when the problems may end and the market may return to some semblance of normality.
It is impossible to even know where we currently stand in relation to an end to the troubles – speculation continues though in which commentators hypothesise that we are six months from normality, or maybe it’s a year, perhaps the middle of 2009?
Hitting hard
This uncertainty is, of course, hitting broker firms as much as anyone. Advisers must be looking at the higher end of the adverse market and wondering where all the products have gone.
The buy-to-let market has also seen providers reduce their loan-to-values substantially.
Both sectors have been strong for both lender and intermediary over the past few years but this business has taken a major hit; those medium- to heavy adverse clients who could once find a number of products to suit their circumstances are now finding a much more constricted marketplace.
Intermediary firms that have taken significant volumes of non-conforming or buy-to-let business in the recent past will no doubt be looking for other areas to diversify into to fill the gap that now exists.
Broker firms have never been slow to grasp the nettle and look into expansion and diversification. There is plenty of evidence to suggest that this is exactly the case today. Indeed, recent research revealed that nearly two-thirds of respondents were now actively looking to source products from lenders that they would not normally deal with – which is clearly good news for many product providers looking to expand their broker distribution.
A considerable 38 per cent said they felt market conditions would result in them changing the sectors they currently focused on, with areas such as prime mortgages, buy-to-let, secured loans and equity release now under consideration.
Room for more
Given the current climate it is perhaps unsurprising that more advisers are considering adding equity release advice to their service offering. The market can definitely accommodate more equity release advisers and one perhaps could argue that there is a current shortage of specialists.
Although ‘credit crunch’ considerations will not be too far from brokers’ minds at present, the equity release market is less likely to be affected, making it look particularly attractive at this time.
The three main categories of demand for equity release by individuals – distress, lifestyle and wealth distribution – suggest that demand will still exist whatever happens in the economy.
Arguably demand could actually increase for a couple of reasons. If underlying inflation continues to rise making household prices higher, people with have less in their pockets and the elderly market in particular will suffer.
Many have a finite income and lack the ability to earn themselves out of difficulty or make cutbacks in their spending – the distress purchase. On the other hand, equity release is growing in the wealth distribution area through inter-generational gifts. As the tightening mortgage market continues to make it difficult for first-time buyers, older clients are releasing equity from their properties now to help their children or grandchildren into the property market.
In simple terms, the demand for equity release should always be there, regardless of economic turbulence and therefore brokers have an active audience that they’re able to market to.
Taking it seriously
Of course, any serious consideration of the equity release market must also take in the necessary cost, resource and time investment that will be needed to begin giving advice. This is not a market where advisers can simply flick a switch, call up the first client and begin working.
The need for specialist knowledge, including qualifications, is paramount as is an ongoing commitment to the market meaning constant up-to-date product knowledge and research, and regular training. The reguator has its eye firmly on the sector – indeed it will revisit the quality of firm’s equity release advice in early 2008 – and it has already shown it is willing to censure firms who are not compliant.
There is plenty of information available for those who wish to make the step into equity release advice. My advice is for advisers to use all the resources available to get clued up before moving into any new area. When you are confident you can dedicate the appropriate time to the qualifications, skills and knowledge you need, then go for it.
Although some may be forced into reviewing income streams, all advisers should see continued diversification as a positive not a chore – a means of long-term profitability, not an exercise to be discarded when the markets return to ‘normal’. Looking for further opportunities is important for all firms whatever their circumstances.
Adding further strings to the bow is an important protection mechanism against specific market area dips. If, worst case scenario, the uncertainty continues into 2009, will firms that haven’t diversified be able to take advantage of the opportunities when the market does return?
Answer ten questions to win Amazon vouchers
Get the daily news delivered to your inbox
Find the latest industry jobs
