The buy-to-let market has blossomed, while the non-conforming market now accounts for everything from near-prime to heavy adverse, even considering borrowers who had experienced bankruptcy, and the lifetime mortgage market has seen a continued level of sustained and continued growth.
Social factors have contributed to the rise in the number of people opting for particular mortgages, with the growth of the buy-to-let sector blamed for stunting the growth of the first-time buyer market. The diversification and widening of product criteria in the non-conforming market has also helped to increase the number of people able to obtain a mortgage.
A whole host of options
The increase in product diversity has also helped to benefit the lifetime mortgage market, with the addition and enhancement of drawdown propositions, which has opened the market to a whole new host of options. Indeed, figures from Safe Home Income Plans (SHIP) revealed that during the fourth quarter of 2006, £89.9 million was taken in drawdowns, out of £202.9 million of new business. This was compared to the Q4 2005 findings in which £14.2 million was taken from £31.3 million of committed new business. Year on year, SHIP revealed committed new business increased by six and a half times. As a result the organisation reported that drawdown mortgages, continued to rate as one of the most popular features for consumers in the 2006 SHIP members’ survey.
Jon King, chief executive of SHIP, said: “2006 has seen a substantial increase in the number of new equity release plans sold. Both home reversions and lifetime mortgages have been party to this increased interest and the number of customers keen to use flexible drawdown mortgages is highly encouraging.
“It is clear that equity release is beginning to claim a significant place in the mortgage industry and its benefits are becoming more apparent to those at which it is targeted. However, if anything is to be learnt from the SHIP members’ survey published this month it is vital that the industry as a whole work together to ensure good advice is readily available to these consumers and that IFAs wishing to enter the market are equipped with the full range of knowledge and skill required.”
Realising the opportunities
Intermediaries who once viewed equity release as a staid and ‘black and white' market, are now realising the opportunities available and getting more involved in the growing sector. However, despite evidence of a healthy market, the Council of Mortgage Lenders (CML) admitted that the value of new lending in the sector had fell in 2006, albeit at the same time as the number of lifetime mortgages increased. The organisation indicated that there was a £4,000 drop in the average new loan from the 2005 findings, to £41,000 in 2006. During the fourth quarter of 2006, the CML revealed that the price of an average new loan had dropped to £38,400, the lowest figure since the launch of the study in 2002.
New lifetime mortgage lending totaled £971 million in 2006, compared with £1,048 million the previous year, the CML suggested. However, the number of new loans rose from 23,215 in 2005 to 23,786 last year.
The study also showed that the total value of lifetime mortgages outstanding had passed the £6 billion mark, reaching £6.6 billion, compared with the 2005 findings of £5.3 billion.
Commenting on the data Jackie Bennett, head of policy at the CML, said: “The trend towards smaller loan amounts on lifetime mortgages suggests that lenders and intermediaries are being careful to ensure that people are only borrowing what they need. The move towards greater use of flexible features that allow people to draw down money as they need it, rather than all upfront, will also have helped the trend.
“This is all good news for older people looking to release equity from their homes. Specialist advisers on lifetime mortgages are clearly beginning to adopt good practice. The FSA's good practice advice further emphasises the special nature of this market. We expect confidence in the market to grow further, now that the FSA is also regulating home reversion schemes.”
Karen Barrett, marketing director at IFA Promotions, said: “In the winter months many older people have to address factors influencing their home such as heating and electricity which may result in having to review their financial situation. The possibility of releasing equity in their home could well be on the agenda along with other elements of retirement planning.”
Guidance
The Association of Mortgage Intermediaries (AMI) was recently moved to introduce guidance notes on equity release following a rise in intermediary and FSA interest. In a review of the sector, the regulator admitted that advisers had failed to explore the future impact on the client the decision to offer a lifetime mortgage, while over a quarter of advisers failed to issue Initial Disclosure Documentation.
However the regulator also found examples of good practices, including the set up of specialist lifetime mortgage training programmes for advisers and compliance checking of cases before final recommendation. A number of firms also used specialist software to assess their client’s eligibility for means-tested benefits.
It is clear that the equity release market provides a good avenue of business for brokers, if you are prepared to put in the time and effort to ensure correct business practices and good advice. The market is growing and, with the increase in product diversity and options, the market is only set to grow bigger. The addition of specific qualifications should also help further the market.
