The equity release market is at an interesting place, argues Peter Welch, head of sales and distribution at Bridgewater Equity Release
While we are already two months into 2010 there is still a distinct feeling, at least in the equity release sector, that we are at the start of a journey rather than anywhere near the end of one. Working in this market can also feel like we’re at a crossroads with a number of different directions to choose from which one we opt for will define the sector for many years to come. However, it also seems that there are many difficult decisions and challenges to face before we can even begin our journey.
Many outsiders looking at the equity release market may believe that this relatively small sector, which seems to continually punch above its weight in the mortgage market, is on the downward path. This is not the case, however, it is true to say that the sector needs to re-evaluate itself and that some rather major forces, not least the Government, need to get to grips with its potential and how it can be best utilised to tackle problems such as the lack of pension provision and funding long-term care arrangements. It may seem like we have been discussing these issues forever and yet they remain unsolved and one must hope that any future Government is in a position to tackle them head on.
So, where does the equity release sector stand at present? A casual look would glean that a number of providers left the sector last year, lending volume fell slightly in 2009 from 2008 as did the number of plans, plus the trade body, SHIP, is actively looking at funding alternatives to help meet any shortfall a declining provider community will bring.
From a further SHIP survey of providers, which took place at the end of last year, many of those still in the market expect a challenging twelve months ahead. It is perhaps most worrying that the sector still seems to be fighting negative perceptions and that the reputation of equity release was still deemed the biggest challenge to be faced.
The industry as a whole has worked hard on this aspect and yet it appears we still have more work to do one positive though is the increased penetration of equity release issues into political circles. Former Home Secretary David Blunkett MP is a keen supporter of equity release as a potential solution to retirement funding problems, while the Conservative Party recently announced it is to launch its own inquiry into the whole issue which will incorporate equity release.
The SHIP survey also revealed that providers anticipate the 2010 market for equity release will stay at much the same level as 2009 with few predicting any further shrinkage. Providers are though anticipating additional funding streams to be opened, plus looking forward to new providers coming to market and the Government taking a much more active role in equity release.
Going back to the SHIP figures for 2009, and from our own perspective, it is pleasing to see a quite substantial rise in the take-up of home reversion plans. The latest SHIP figures reveal a 28% increase in sales for the product in Quarter 4 from the previous three-month period. This is down to a number of factors, not least the ongoing education of equity release advisers on the benefits of reversions and their suitability. We do not suggest that a reversion is suitable for everyone, however a point had been reached – and last year’s Which? report into equity release advice highlighted this – where a number of advisers were dismissing reversions out of hand even before they had checked the suitability and preferences of their client.
This may still be going on in some cases however, the upturn in reversion plans suggests a much more educated advisory population which is actively explaining the potential benefits of reversions, rather than a distorted viewpoint of the products. In this economic environment advisers will know only too well that certainty is at a premium and the fact that reversions can provide this to clients regardless of changes in property price is a compelling argument. We have also learnt that a number of lifetime mortgage providers are not allowing clients to release further funds after the initial equity release because of the fall in prices and the subsequent changes to LTV this is simply not the case with Bridgewater’s reversions, for example, where we provide a guarantee that provided the client still owns a percentage of the property they can come back at any point to release this equity.
Again, at a Government, provider, adviser and consumer level we come back to the issue of education. This is still one of the major challenges for all equity release stakeholders and unfortunately we are almost awaiting the result of the next General Election to determine the next steps to take. The road will be long, with many a winding turn, however the fundamentals of the equity release market still mean that the journey will be worth making.
