Equity release sales set to double by 2013

Norwich Union is predicting annual equity release sales to double to £2.4 billion over five years.

It has made a number of predictions as part of a report on the sector compiled to celebrate its 10th anniversary in equity release on 16 November.

Norwich Union believes that the market will see referral deals where consumers can access equity release products via large high street banks and building societies. This will build on an existing trend and lead to significant growth in this market over the next 10 years.

With these new entrants, the total value of equity release sales could double to £2.4 billion and a large number of new qualified intermediaries could enter the sector. However, as they raise the standard of equity release provision, it is likely that advisers who only ‘dabble’ in the sector will withdraw altogether and refer enquiries to specialist companies.

With key market drivers such as lack of pension funding, longer retirements and the government encouraging consumers to fund themselves, Norwich Union predicts that the quality of existing products will be improved upon.

As a consequence of the rise in indebtedness, Norwich Union foresees the introduction of products that enable consumers to transfer directly from a residential mortgage into an equity release plan. It believes that these are likely to be provided by the existing players in the equity release market, “as they have the expertise and back office systems to administer them”.

With one in three consumers over 55 still owing money on their mortgages, Norwich Union believes that they are likely to be hugely popular and of real benefit to consumers.

As equity release becomes an increasingly accepted retirement funding tool, Norwich Union believes that traditional pension and inheritance tax planning specialists will add this product to their ranges – via white label deals with existing providers.

It also believes that the government is also likely to become more involved in this market as it starts to work more closely with consumers and providers to solve the UK’s retirement funding crisis.

The type of property that people can use for equity release is also likely to widen – however with certain inherent stumbling blocks – this move may not happen for several years.

Anthony Rafferty, head of marketing, post retirement at Norwich Union, said: “We have been one of the leading providers in this market for 10 years and have seen many developments and changes. We have helped over 80,000 customers release £2.8 billion worth of housing equity, which has significantly improved the quality of retirement for many consumers.

“Going forward, we see the market doubling over the next five years and truly coming into its own as a mainstream retirement planning tool. With big high street names offering these products to their customers, more intermediaries gaining the necessary qualifications and equity release innovations taking into account consumers changing needs – the future for this market is bright.”

Over this period the average value of a property used for equity release has moved from being almost £40,000 (1999) more expensive than the average property to just over £22,000 (2008). This shift clearly shows that thousands of ordinary UK homeowners are now using these products to help fund their retirement – equity release is no longer simply for those with huge houses and relatively high property values.

Over this period, Norwich Union has also seen significant product innovations as lifetime mortgages dominated the market and drawdown mortgages were introduced. Drawdown products that allow consumers to reserve a ‘pot of equity’ to release in the future now account for almost 60% of Norwich Union’s sales – highlighting the importance consumers place on flexibility.

As the market has grown and developed over the last 10 years, Norwich Union has also found that distribution channels have expanded and developed with more intermediaries entering the market, direct sales forces growing and some financial services partners on the high street entering referral deals.

Plenty of housing equity for over 65s still available

The latest findings from Prudential’s Equity Release Index show that despite falling house prices, homeowners aged 65 and over still have £692.06 billion of equity in their homes.

Prudential’s Index, which tracks the amount of equity held in the properties of people aged 65 and over in England and Wales, found that 42.45% of this equity belongs to those living in London and the South East.

Prudential’s Index reveals that the value of property equity belonging to homeowners aged 65 and over fell by £34.37 billion between May 2008 and August 2008, with the average homeowner aged over 65 seeing the value of equity they have in their home fall by £9,119. Homeowners in London, aged 65 and over, saw the highest decline for any region in England and Wales with equity in their homes falling by £18,094.

Keith Haggart, director of lifetime mortgages, at Prudential said: “Every homeowner is being affected by falling property prices, but it’s important to remember that many people, especially retired homeowners, bought their homes years ago and have benefited from growth in the housing market. Even in this falling market, the vast majority of retired homeowners still have considerable wealth tied-up in their properties.

“Despite the recent falling costs of petrol, retired Britain has the highest rate of inflation and still faces a significant rise in the cost of living. For these reasons, more people are looking to release equity from their homes to maintain or improve their standard of living in retirement.”

SHIP wants Trading Standards action over Sale And Rent Back claims

Equity release provider trade body SHIP (Safe Home Income Plans) has today called on Trading Standards to take action against sale and rent back companies who it believes are misleading consumers with their websites or advertising.

SHIP is concerned that many websites are misleading because they fail to inform consumers up front the risks associated with entering into a sale and rent back scheme. SHIP also believes many sale and rent back providers are making misleading comparisons with FSA regulated equity release products.

SHIP is calling on Trading Standards to insist that sale and rent back companies have to make clear in their websites and advertising exactly what they do and do not offer, and for them to be fined for not doing so.

The letter sent today to the Head of Trading Standards and copied into the Advertising Standards Authority (ASA), the Financial Services Association (FSA) and the Office of Fair Trading (OFT), includes examples of the claims being made by these companies.

SHIP has cited the following example of misleading information: “Before, an equity release would mean taking out a new loan secured by your property. If things do not work out according to your plans, you might end up losing your home to repossession. People, who do not want to risk their homes to repossession, would rather spend the rest of their lives trying to maintain a standard of living they are accustomed to rather than choose an ‘equity release’ loan”.

This is factually incorrect, SHIP members offer security of tenure by the very fact that the loans are not serviced, and also offer customers a no negative equity guarantee, which ensures that the loan will never be more than the value of their home.

Another company also makes factually incorrect statements about equity release and states: “Looking to access your home equity, yet wary of the high cost of equity release schemes or losing ownership of your property due to home reversion? Fear not – xxx’s quick, no fee home buying service is the ultimate solution for accessing your home equity – it’s simple, fast, and the cash offer you receive is guaranteed.”

SHIP has called this “sensationalist” and argues it “plays on potentially vulnerable homeowners without presenting a balanced view of the products concerned”. The body claims that sale and rent back is presented as the ‘ultimate solution’ which could potentially lead homeowners who are in a susceptible position to make an inappropriate decision. In addition this states that people would lose their home through a home reversion plan which is incorrect as a SHIP reversion provider guarantees to deliver the security of tenure for clients.

Last month, the OFT issued the results of a six month investigation into the sale and rent back industry, with a recommendation that the FSA regulate the sector.

Andrea Rozario, director general of SHIP, said: “At the moment the sale and rent back sector is growing unchecked and aspects of it could present a real danger to consumers. It is important, now more than ever, that this sector is forced to offer clear factual information, and penalised if they do not. For this reason we have sent a letter to Trading Standards, outlining our concerns and seeking a meeting to discuss the situation.

“Ultimately people need to be able to understand the risks involved in a sale and rent back transaction, however currently this is not always the case. To support this, SHIP recently compiled a “Do’s and Don’ts” checklist for anyone considering sale and rent back, to show there is no comparison with regulated equity release.*

“We believe that the ethical companies in the sale and rent back sector will welcome these recommendations, as they will not want to be tarred with the same brush as those who are misleading consumers.”

Equity release sector to continue to strengthen

The continued strength of the equity release sector is likely to continue throughout the third quarter of 2008 and on to the end of the year, according to home reversion plan provider Bridgewater Equity Release.

In response to the recent increase in business volumes announced by Safe Home Income Plans (SHIP) for Quarter 2 2008, Bridgewater says it is already seeing strong levels of business in Quarter 3.

Recent figures from SHIP showed that business volumes produced by SHIP members had increased by 14% over Quarter 1. £275.7 million of equity was released by SHIP members with home reversions now accounting for 5% of all loans.

Alison Beeston, compliance and communications manager at Bridgewater Equity Release, said: “The SHIP figures suggested that the equity release sector is bucking the trend of the overall mortgage market which is still in the grip of the Credit Crunch and the wider liquidity shortage. As a SHIP member it is pleasing to see the growing volumes of equity release business and, if Bridgewater’s own volumes in Quarter 3 are anything to go by, this upward trend and continued strength should show up in the next set of quarterly data.

“The positive figures emanating from the equity release sector at present show the increased demand for the products as more consumers opt to actively use their biggest asset and access its value. As society changes and the public look at their retirement options, equity release is becoming a more mainstream solution especially at a time when pension fund levels are falling. With house prices also continuing to fall, the benefits of home reversion plans become even greater and we are working with advisers to help them understand the product and its suitability for their clients.

“Bridgewater’s products are only available through intermediaries, therefore it is welcome news to see the broker channel continuing to dominate equity release distribution. We continue to develop a range of sales and information aids for intermediaries and look forward to meeting a wide section of the broker community at the forthcoming AMI road shows.”

Hodge to hold CeRER training days

Hodge Equity Release has appointed InsynergiUK to provide training at a series of one day workshops throughout October. The workshows are designed to prepare new brokers and advisers for their Certificate in Regulated Equity Release (CeRER) examination.

In July Hodge Equity Release reported a growing interest in equity release among mortgage brokers attending their introductory seminars. As a result of this feedback, this latest initiative is designed to offer revision training for the essential requirements of the CeRER examination.

The days, aimed at those entering the sector for the first time, will cover exam techniques, considerations of the sales and legal framework as well as the benefits, risk factors and impact of equity release for clients.

Places are limited and will be allocated on a first come basis.

Jon King, managing director of Hodge Equity Release, said: “We offer equity release plans exclusively through brokers and therefore, are delighted to present this beneficial opportunity for advisers preparing for their CeRER examinations. This qualification will provide them with the opportunity to diversify and grow their business in the future and will also support the ongoing development of the equity release market.”

Freehold founder launches equity release brand for packagers

Paul Brett, founder of the Freehold Packager Association, has launched specialist equity release brand Wakeswood Financial, which will operate via the packager market.

With more packagers looking for new products to market, according to Brett, Wakeswood is able to offer packagers a “valuable new string to their bow” and satisfy their introducers’ needs for something new to offer as well as providing all the advice and therefore taking on any regulatory risk.

Brett said: “I am a passionate believer in the packager market, having been a packager and involved in setting up Freehold. Packagers are the perfect distributors of niche products and promoting equity release will give them another avenue to add value to their proposition to their introducing brokers.

“Equity release is a growing market. However it has tended to be ignored by packagers in the past, due to their commitment to non-conforming mortgages which provided better returns. But I am finding that in these difficult times, packagers are very interested in the package Wakeswood offers, which helps packagers offer a new facility and provides introducers with a real service for clients, without any compliance issues.”

Over 65s hold £726bn in home equity

Prudential’s latest Equity Release Index has revealed that homeowners aged 65 and over still have £726.43 billion of equity in their homes.

The Index, which tracks the amount of equity held in the properties of people aged 65 and over in England and Wales, discovered that over 40% of equity belongs to those living in London and the South East.

The value of property equity belonging to homeowners aged 65 and over fell by £7.7 billion between February 2008 and May 2008. However, Prudential says this decline in value is very recent because between June 2007 and May 2008, the figure increased by £12.731 billion.

Between February 2008 and May 2008, London was the only region in England and Wales to see an increase in property equity values. The average homeowner aged over 65 in the South West saw the value of equity they have in their home fall by £6,117, the highest decline for any part of the UK. This was followed by £2,964 in the North East and £2,645 in the South East. Homeowners in London saw the equity in their homes increase by an average of £954.

Keith Haggart, director of lifetime mortgages, at Prudential said: “Although most retired homeowners have seen the value of equity in their homes fall in recent months, it’s important that they don’t lose sight of the bigger picture which is that despite current falling property prices, in the vast majority of cases retired homeowners have built up a significant amount of equity in their homes over a number of years.

“This, together with the rising cost of living means that many more people are now looking to release equity from their homes to maintain or improve their standard of living in retirement. Equity release schemes can be an excellent way to help do this, and any provider who is SHIP registered provides a no-negative equity guarantee as well as guaranteeing that the mortgage interest rate is fixed for the term of the loan.”

Bridgewater looks to smash reversion misconceptions

Bridgewater Equity Release is urging those intermediaries providing advice on equity release products to challenge any potential misconceptions they may have about home reversion plans and their suitability for different clients.

Through working with advisers at events, Bridgewater has been able to compile a range of arguments used by advisers against home reversions and show them to be misconceptions. Bridgewater believes that challenging these views will help ensure clients receive the best advice and most suitable product for their needs.

Alison Beeston, compliance and communications manager at Bridgewater Equity Release, said: “We have spent a number of months talking to many advisers about home reversions, the benefits of the products and their suitability, especially in the current climate of house price falls. Time and again we are finding the same arguments raised about the product and the reasons why advisers may not be recommending them. Putting these arguments together allows us to paint the real home reversion plan picture and gives advisers information to actively consider the reversion option alongside the lifetime mortgage.

“Bridgewater are working with advisers to show that home reversion plans are not just for those looking to release the maximum equity. They also provide the customer with a large degree of certainty about what they are getting up front plus clarity and reassurance that they know what is left and the remaining value of the estate is protected. We urge advisers to challenge some of the ‘gut feelings’ they may have about home reversion plans and look at the long-term as well as the immediate needs of the customer. In today’s market, it is imperative that advisers review all the options available before making their recommendation.”

SHIP comes under fire for moving goalposts

Safe Home Income Plans has been criticised for changing its reporting methods to ignore year-on-year falls in new business.

Last month the trade body revealed that for Q2 2008 the total value of new business was £275.7m. But whereas previously it made year-on-year quarterly comparisons, the latest figures are compared with Q1 2008.

In Q1, £242.7m in new business was completed, so quarter-to-quarter business rose by 14%. But in Q2 2007 SHIP put the total value of new business at £302.3m, so year-on-year the figure actually fell 9%.

Stuart Wilson, managing partner of Equity Advice, says: “I can understand why SHIP wants to dress up the figures but it must be consistent to maintain its credibility. If it has begun comparing quarter-on-quarter results it must continue to do so or it will look as if it is making comparisons that put things in a positive light.”

But Andrea Rozario, director-general of SHIP, says: “Our figures are available for anyone to see so there’s no question of dressing them up. The fact that in Q1 2008 the equity release sector was down by 13% meant there was a need to know if this was going to continue into Q2, so SHIP compared quarters to establish how the industry is coping with a changing landscape.”

Just Retirement removes up-front fees

Just Retirement has announced the removal of up-front fees for its range of equity release mortgages, effective from 14 August until 31 December.

This new offering – which removes set-up and valuation fees on all applications, should save applicants an average of £700 and make equity release even more accessible to a wider market.

David Cooper, marketing director at Just Retirement, said: “Just Retirement strives to be a leading provider of equity release solutions, offering excellent value for money. We know consumers are feeling the pinch enough at present, so we hope this gesture will help those looking to reduce outgoings and boost income in retirement. This is especially true when you combine this with the flexibility offered by Just Retirement’s drawdown product, which means individuals only pay interest on the amount they draw down and not on the overall agreed amount.

“This also highlights how equity release mortgages are now as good value as many standard mortgages. Just Retirement has been leading the industry to make these mortgages better value for all consumers.”