The evolution of equity release has seen some major changes over the years and, despite the current market turmoil, Safe Home Income Plans (SHIP) – the equity release body representing the majority of providers in the sector – has predicted the market could be entering something of a ‘golden age’.
When one considers baby boomers coming to retirement age, greater focus on housing to fund retirement, and the vast quantity of untapped property equity in Britain, this comment does not seem at all outlandish.
Brokers looking for an alternative income stream following the sharp downturn in specialist business are being advised to take a serious look at the world of equity release if they haven’t already.
Certainly, Andrea Rozario, director-general of SHIP, wants the world of equity release to be demystified and the perception that it is a complicated and complex process dispelled.
She says: “Equity release is a huge untapped market and I believe it is entering a bit of a golden age. For brokers looking at alternative income streams, equity release is often a viable solution. The pent-up demand is huge.”
Indeed, the time is upon brokers to sit up and take equity release seriously. On 6 April, SHIP’s deadline arrives for all advisers to hold home reversion qualifications in order to bring business to any of its members.
Rozario believes this move will help display advisers’ commitment to the area and improve confidence in the industry. Duncan Young, managing director of Retirement Plus, says: “It puts lifetime mortgages and home reversions on an equal qualification footing and should lead to more home reversion business being considered.”
A surprising lack of uptake
SHIP results have shown that the industry is now worth £1.12 billion. While still quite small and having not grown much in the past year – hardly surprising for any sector of the mortgage industry given market conditions – there appears to be a massive potential for growth in the future. Of course, predicting when this growth will come is the tricky part.
To be sure, it is the lack of uptake that surprises some. Richard Farr, director at the Association of Mortgage Intermediaries (AMI), says: “I am continually surprised at the annual gross lending figures for the lifetime mortgage market and have been for some years. In previous roles, I have conducted detailed reviews of the operational mechanics of this market and have always been under-whelmed by the consumer demand and take-up.
"This view is after taking into account the plethora of more suitable alternatives, disclaimers by relatives and hurdles of arranging independent legal advice. Possibly it has been due to insufficient access to quality advice with relatively few mortgage intermediaries advising in this area.
“It is encouraging that these numbers are on the increase and tend to spike at times like these with the SHIP qualification deadline only a week away.
"Also, although served by well-run lenders of integrity, there are few household names in the lifetime market. Present rumours may also overcome this. As the number of residential mortgage transactions recede this year I envisage, and AMI’s regular surveys tell us, we will witness a steady growth in the lifetime market.”
Hampered growth
With so much doom and gloom swirling around the market, it is heartening to see such optimism surrounding the equity release market. However, research by the Council of Mortgage Lenders (CML) recently showed that the UK equity release market has been held back in its growth, unlike similar markets such as the USA, Australia and New Zealand, which have the same underlying fundamentals.
The report showed that hampered growth has come as a result of three factors: the government’s view that equity release has limited relevance because it cannot help the poor; continuing negative press attention covering past problems (see the recent works of ITV’s Tonight With Trevor Macdonald for a case in point); and large lenders’ view that entering the market holds a ‘reputational risk’.
The CML study found that a simple switch to a more positive stance by the government and the involvement of some larger lenders could ‘transform the market in the UK’.
The report’s author, Peter Williams, an independent consultant, concluded: “Equity release will grow much faster if the industry moves forward in more creative ways. Part of the task is making it clear this option is both available and attractive with known limited downsides.
“Demand for equity release products could be speeded up and extended if government played a more creative and active role around the issue of helping home owners access the value of their homes.
The government should recognise that, given its concern to build a society in which ownership of assets is a priority, it should help create and sustain ways in which people can exploit these assets.”
A ‘Catch 22’ situation
While the government’s role in promoting the sector positively cannot be underestimated, what of the broker? Why is equity release still relatively untapped by intermediaries?
For Alison Beeston, compliance and communications manager at Bridgewater Equity Release, it is a ‘Catch 22’ situation – advisers are not making themselves known to customers as a source of equity release information, so not getting enquiries on the matter, and therefore perceiving that there is no demand for it.
She says: “Unfortunately many advisers, firms and even networks are by nature, short-termists. If they only look at current business volumes they see a very small market.
"If they look forward they may recognise the absolutely huge potential of the retired market and equity release waiting to be ‘tapped’. Even the Thoresen Report appeared to acknowledge the demand for equity release – ‘it was the second most common enquiry in the Citizens Advice Moneyplan pilots’.”
Beeston cites that, over the next 30 years, the over-65 population is set to increase 76 per cent from 9.7 million to 17 million and adds that 78 per cent of households where the eldest person is aged 60-74 own their own homes.
She says: “This is only the start of the demographic ‘bubble’ so the figures will continue to grow. Advisers need to be brave or they will miss out in the long-term.”
When it comes to entering the market, Rozario says there is no reason for brokers to be hesitant. She explains: “If you look at the SHIP safeguards, they are second to none. It’s not a complicated process and it’s about putting it into perspective.
"There is all sorts of support for advisers. AMI has comprehensive guidelines, TSF is launching an initiative, and brokers can contact individual lenders. There is probably more support in equity release industry and safeguards then the normal marketplace.”
Yet, there is concern that equity release has begun to attract consumers that could be too young to require such products, namely the 55 to 65-year-old bracket.
Indeed, with life expectancy ever on the increase, this is something that needs to be seriously considered, not only for the consumer, but the lender providing the plan.
Certainly, Young believes equity release is attracting people who are too young, and says: “Home reversion providers have a long standing relationship with customers and are used to meeting their genuine concerns and expectations as they grow older and more infirmed. These providers, by and large, have a minimum age of 65.”
However, Beeston argues that it is a matter of quality advice. She says: “Your average 55-year-old can expect a long retirement. This creates a dichotomy of needs – current financial needs and wants versus the needs of the long term.
"Arguably this makes expert financial advice even more important for the younger equity release client as it is important that both the short and long-term aspects are considered and prioritised when deciding whether to proceed and how much equity to release.”
Finding a balance
While advice is vital for such matters and brokers play an important role in laying out clients’ options, Rozario points out that, ultimately, the decision whether to take up equity release is down to the consumer.
She says: “The age for demand of equity release is dropping, but at the same time, the market is becoming more and more innovative and flexible. Customers have to balance taking equity release at the age they are with the impact on their estate.”
Nevertheless, the future of equity release is bright. Young says: “The acceptance of equity release is gaining ground. Add to this the normal arguments on pension provision and demographics together with the increasingly professional adviser base and the promise of a sustained period of growth is good.
"The only fly in the ointment is whether the credit crunch will lead to customers delaying the decision to commit, as seemed to be the case last Autumn when the Northern Rock problems surfaced.”
However, the message for brokers to wake up to the potential of equity release is clear. While still a small market in relative terms to the rest of the mortgage sector, there is little doubt of the potential for growth and the need for consumers to be given accurate, insightful advice.
Gaining an understanding of the market can surely only improve brokers’ ability to advise customers on all aspects of their property finance, therefore not only expanding intermediaries’ ability to generate business, but improving and cementing customer relations for the future.
