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Equity release comes to the high street

Nicola York looks at the latest moves which are bringing the big brands into lifetime mortgages

With RBS and Natwest now offering lifetime mortgages to existing customers and HSBC’s recent foray into the market, it looks as if more high-street banks are likely to move into the equity-release sector.

Barclays, HBOS and Nationwide have also been linked with a push into the sector in recent weeks.

HSBC is working with In Retirement Services to offer equity release. IRS head of business development Frank McCann says: “We are delighted that HSBC chose to partner with us because it underlines the values that we have stood for for 11 years.

“It is still early days but both parties are pleased with how it is going so far.”

McCann says equity release has been on the radar of all the high-street banks for the past few years and HSBC’s research showed there was a demand for equity-release products from its customers.

He says: “Five million properties are owned by people who are retired but only around 100,000 are in equity-release schemes.”

IRS offers the equity advance plan which can be taken out as a lifetime mortgage (called a fixed option) or as a reversion scheme (shared growth option). McCann says both options are slightly unusual because the customer knows from the beginning what proportion of their property will go to IRS when it is sold.

RBS and NatWest are offering a lifetime mortgage product for its existing customers over 60. The product includes a guarantee of no negative equity and a protected equity option so customers can set aside a percentage of the property value to be saved for inheritance.

An RBS spokesman says: “We are in the process of submitting our application for Ship membership. The product was designed with Ship membership in mind. We have no immediate plans to launch the product to intermediaries.”

Norwich Union product development manager Brendan Kearns says: “Often, when one company moves into a sector they all do. They tend to move in packs.”

He says it is encouraging to see high-street names considering the sector and is interested by HSBC’s pilot scheme approach. He says: “I would not say they are entering the market but they are dipping their toes in the water.”

Kearns says HSBC teaming up with a Ship provider and RBS and NatWest entering the market will do a lot to normalise equity release because they have huge access to consumers.

But Bridgewater managing director Peter Couch does not think other providers will necessarily follow HSBC and RBS and NatWest’s lead. “I do not think the pilot scheme is going to create a lot of interest from other big-name players. I am not convinced that HBOS and Nationwide will be watching too closely.”

Couch says the partnership with HSBC will be beneficial for IRS because the cost of leads is high.

The prospects also look good for IFAs looking to enter equity release. Couch says: “If providers offer products which are attractive and provide training for IFAs then I think more advisers will enter the market.”

Churchill Investments head of research Warren Perry says it is likely to encourage more intermediaries into the market but urges caution. “I would urge advisers to enter for the right reasons. It should be on a need basis rather than based on the potential for selling products.

“Mainstream providers entering the market are to be encouraged but it does need to be handled with kid gloves.”

Perry is worried about potential misselling as more providers enter the market and chase new business. He would prefer clients to talk to advisers who look at the whole of market to find the best option although he thinks that providers’ advisers are likely to be better trained in equity release than some independent advisers.

Ship chairman Jon King considers this marks the beginning of more high-street lenders entering equity release. He says it is driven by big brand names’ realisation that there is a strong demand for products.

He says: “Anything that increases choice and access to advice is a good thing. This is a big step in opening the equity-release door to clients.”

Chairman of Ship mortgage products board Simon Little says: “Other high-street lenders are probably waiting to see the results of the FSA’s mystery-shopping exercise before entering the market. They seem to be taking the softly, softly approach.”

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