The overall outlook is good. The entire equity release market will be regulated as of April 2007 when home reversions also come under the jurisdiction of the FSA. There is no denying that this is a positive step for brokers, lenders and consumers.
Perhaps because of this, the FSA has made no mention of another mystery shopping exercise in 2007. This will mean that the whole industry – and brokers in particular – will not have to worry about any of the associated negative publicity that arose around these exercises in previous years.
The course of house prices and interest rates in 2007 will be heavily influenced by buy-to-let investors. There has been a surge of interest in the second half of 2006 which has had a huge influence on house prices. But with interest costs exceeding rental returns and more equity needed to finance purchases will demand continue? – if it does then house prices and interest rates are headed higher, if not then the reverse is true.
Duncan Young, Managing Director, Retirement Plus, said: "Within the equity release market demand will continue to grow. This will be helped by a raft of initiatives from the likes of PMS ably assisted by AMI and the PFS, which has a new faculty of retirement and care. One technical change in FSA returns will see lifetime mortgage rates rise by around 0.5 per cent and this could trigger some smaller players to re-evaluate their commitment to the market place. Also FSA regulation of reversions will come in April and will pass with hardly a murmur – all the product providers have had ages to get ready.
"On the media front fees, PPI and TCF will continue to dominate as journalists look for mis-selling copy, but thankfully equity release will, for once, be below the parapet and so will be allowed to offer considerable benefits to the consumer."
The ongoing crisis in the pensions market will continue to have an impact on equity release in the coming year. With more and more retired adults finding that they do not have sufficient funds to meet their financial needs, they are looking for alternative ways to boost their income, including equity release. Consumers are increasingly recognising that traditional pensions vehicles, such as the basic state pension, are not enough to keep them in the manner to which they have become accustomed. This leaves them choosing between dramatic changes to lifestyle, working for longer or finding money from alternative sources.
Consolidation will play an important role in the shaping of the industry over the next 12 months, making it stronger and more efficient as a result. Restructuring as a result of mergers and acquisition activity, the flat growth in new business and the departure of some of the smaller players are some of the key drivers.
The intended merger of Nationwide and Portman Building Societies and the acquisition of the UK GE Life business by Swiss Re are just two examples.
Overall the equity release market should expand by about 10-15 per cent over the coming year - enough for everyone to have confidence in the future.
