release market is inevitable, predicts industry body Safe Home
Income Plans (SHIP). “The reality is that declining levels of
private pension provision and meagre state pension benefits will
drive more people in this country to explore alternative ways to
top up their income in later life,” said SHIP’s director general,
Andrea Rozario. “Some will work longer, but a very large number are
already planning to use the value in their property,” she
stressed.
Rozario was responding to a study undertaken by independent
consultant Peter Williams, which painted a mixed picture of the
equity release market. In the study, Williams concluded that though
the UK equity release market has huge potential given positive
fundamentals such as growth in housing wealth, an aging population
and potential pension shortfalls, it has so far produced
disappointing growth. The study was conducted on behalf of the
Council of Mortgage Lenders, a body representing UK banks and
building societies.
Go deeper with GlobalData
Williams argued that though the Financial Services Authority (FSA)
now regulates nearly all equity release products, it is evident
that this in itself has not transformed negative consumer
perceptions of the market. In part, he explained, this is because
there are still problems with the way equity release products are
sold, a shortcoming identified by the FSA in mystery shopping tests
in 2005 and 2006.
The industry has responded with more guidance and better training,
and the benefits of this will build up over time, Williams
continued. “However, it remains a serious problem, not least
because any intermediary regardless of expertise and experience can
arrange an equity release loan. This is one of the reasons why
consumer bodies such as Which? continue to recommend that
households use other means, such as trading down, to access their
home equity,” he wrote.
The equity release sector is also plagued by misconceptions; one
notable one, said Williams, being that the market is notable for
the absence of large financial services providers. This suggests
there is something seriously wrong with the market, he noted.
However, he added that while there a large number of smaller
providers, there is a solid representation of major players. These
include Norwich Union, Standard Life and Prudential.
Williams highlighted another area that he believes requires
attention: product development. “Taken in the round, the market
appeal of the current offerings is quite limited,” he wrote.
“However, that is not to say more cannot be done, and it is evident
some providers are beginning to push out the boundaries of the
equity release market,” he added.
He explained that the first generation of equity release products
was very much structured from a producer perspective and produced
large cash sums that borrowers could use or invest. He added that
new-generation products are more consumer friendly and include
features such as flexible draw-downs in terms of both income and
capital, giving borrowers more control over the amount they receive
and when.
Optimistically, in her concluding comment on Williams’ study,
Rozario said: “All that is necessary for this sector to increase
enormously in size is for consumers – and their opinion formers –
to recognise the huge improvements that have been made to most
equity release schemes.”
In an indication of the market’s potential, a study undertaken in
2006 by research firm Mintel International forecast annual equity
release sales of £1.744 billion ($3.5 billion) by 2012, an increase
of 44 percent compared with 2006. Williams noted that in Mintel’s
forecast the annual rate of growth remains “quite subdued” until
2010.
