Anyone working within the equity release sector has always understood the strong underlying demand drivers that were present. The point was, that a few years ago, this demand was dormant – yes, we could all see the circumstances when the equity release solution was appropriate, however a range of factors (not least the continued fall-out from the Credit Crunch) meant the sector’s ability to take-off was compromised.
Now however in 2015, we are undoubtedly in a very different situation – one where equity release solutions might, quite honestly, be the only game in town for those seeking to pay off an interest-only mortgage or looking to raise finance via their home. Add into this a growing acceptance that the family home can be a useable asset, rather than just something to pass on through inheritance, and we have the foundations not just for continued growth, but a considerable step forward.
The latest figures from the Equity Release Council give some insight into just how much progress has been made in 12 months, let alone the past few years. The most recent lending figures for quarter two 2015 were revealed to be £384.3m, the largest of any quarter since 2002. 5,400 new equity release customers took out plans during that three-month period, up 11% on the first quarter of 2015, with homeowners withdrawing more than £4m of housing equity every day.
The half-year figures are just as positive with lending breaching £710m and the expectation must be that the sector as a whole will get close, if not break, the £1.5bn barrier this year. Given the significance placed upon the sector passing £1bn again a couple of years ago, you can see why this could be deemed a real turning point and landmark moment for equity release.
Certainly, all the pieces are moving into place when it comes to pushing on from this point and developing equity release as much more of a mainstream option. The ongoing focus on retirement income brought about by the introduction of the pension freedoms has certainly focused a brighter light on the equity release market. This is clearly because, even with these freedoms, many people are operating with small pension amounts and need to find other methods to supplement this income. Given the housing equity of those of pensionable age runs into the trillions, it is not surprising that the interest around equity release has grown.
These points are certainly not being lost on the new (and potential) providers that are eyeing up the sector, and they should also not be forgotten by both existing and perhaps new advisers who are looking to add a product string to their bow. I’ve been a very strong advocate of the need for advisers to be true later life specialists, however I’m also aware that the first step along that path may be for advisers to secure their equity release qualifications and authorisations before branching out further.
When it comes to looking at sectors which may be worth forging into, I think advisers will surely need to consider equity release. We only need to consider what many refer to as the ‘interest-only time bomb’ alongside lending in retirement issues to see that demand for equity release is likely to increase. Lenders in the residential sphere have taken the MMR rule changes and translated them into an environment where some older borrowers have become persona non grata. This leaves a limited number of options available and means that the equity release solution might be a much more appropriate avenue to take.
The equity release sector is likely to be buoyed by much greater product competition from old and new providers in the short-term, plus it is also a sector which has never been afraid to innovate. Coupled together this makes for an exciting market place – one which advisers should be benefiting from and one which is likely to become much larger in the very near future.
Chris Prior is manager, sales and distribution at Bridgewater Equity Release