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Market Watch: Equity release
02 August 2010
Safe Home Income Plan (SHIP) figures have revealed that the equity release market shrank from £213m in Q1 to £197m in Q2, while average market advances increased slightly from £45,251 to £45,702 over the quarter. With so few lenders in operation, can they service the demand for equity release advice and products? Name: Dean Mirfin Company: Key Retirement Solutions While the latest SHIP figures show a quarter-on-quarter fall, this should be a short-term decline, primarily reflecting the fact that Q1 2010 was the last period when Prudential was present in the sector. Prudential, as well as providing products through intermediaries, also sold direct to consumers, and its exit from the market was expected to produce a slight slowing of business as people found other routes to getting equity release advice. Naturally, with the exit of both Prudential and IRS, which also sold direct to market, there had to be some distribution realignment. This has started to take place, with the latest figures again revealing another increase in the level of consumers dealing through intermediary channels. It is no surprise that potential funders are eyeing the sector with interest, as the gaps in funding are clear. Already this year, we have seen the return of More2life, which only distributes through intermediaries, and more funders are expected to emerge. Consumer demand is not down, but it is dragging its feet, as people who would previously have been captured by Prudential and IRS find alternative sources of advice. The major barometer of wealth is the value of people's homes. Many are now seeing their property values returning to early-2007 levels, which has raised confidence. As a result, we expect demand to grow and competition levels to rise as further providers join the sector, which is good news for all concerned. Name: Peter Welch Company: Bridgewater Equity Release At first glance the Q2 SHIP figures can be viewed as a little disappointing. The question is whether the 8% drop in release values is a ‘signal' or just ‘noise'? My own view is that we are experiencing a temporary blip in the long-term trend. During April and May, the country was in the midst of a General Election campaign and the following limbo before the coalition was formed. We know that retired customers do not like uncertainty and many may have deferred their decision to take an equity release plan at that time. There is now more clarity about the coalition government's appetite to cut public spending. The older generation will not be immune from the effects of these cuts and we've already seen plans to raise the state retirement age under discussion.Some forecasters are predicting Bank base rate will stay at 0.5% until 2014 and this will hit retired savers hard as well as those looking to invest their pension and buy an annuity. There remains a huge latent demand for equity release. The challenge the industry faces now is getting the message across to consumers that modern-day plans are safe, flexible and good value for money. The number of lenders operating in the sector is not the limiting factor. The market has operated successfully in the past with a similar number of providers as there are now. Strategically the equity release market remains highly attractive and inevitably new providers will arrive. What is not certain is the timing, and this may depend on how quickly the market shows that it is growing. Name: Tom McPhail Company: Hargreaves Lansdown Equity release is an essential element of the retirement income solution for millions of current and future pensioners who have failed to accumulate sufficient pension savings. It is remarkable that equity release providers and intermediaries have failed to capitalise on the opportunities presented by this huge potential market. Business volumes have hit a plateau over the past few years, liquidity has been constrained, and the sector has continued to struggle with a tarnished reputation that deters potential investors from taking advantage of suitable solutions. Untapped equity in the UK amounts to around £600bn, according to SHIP - a sum equal to half the UK's entire funded pension system. In spite of this market potential, business volumes equate to just 1% of the total mortgage market and turnover of under £1bn a year. Even if the pension auto-enrolment programme delivers the desired outcome, with six million new savers, an increase in the overall savings ratio and a step change in our national engagement with retirement savings, pensions will not deliver all the answers. We urgently need to have a fully functioning equity release sector working in harmony with our pension system - which itself has enjoyed at best a patchy track record in recent years. Perhaps the development of wrap accounts, with their holistic financial oversight will provide an answer. When clients can see all their assets in one place, it will be much easier for them to plan their capital and income management. Published by Mortgage Solutions
