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Fast forward for reversion

Nicola York surveys the equity-release scene and finds that home-reversion schemes look set for major business growth

Sales of home-reversion plans are likely to rocket over the next couple of years.

Big players such as Norwich Union are entering the sector and a flexible reversion product is being launched by Bridgewater Equity Release so sales should soon be taking off, according to Bridgewater managing director Peter Couch.

Home-reversion schemes currently comprise around 5 or 6 per cent of the equity-release market and Couch says: “By the end of 2006, I would expect reversions to be looking nearer to 20 per cent of the market share.”

He says there are three reasons for a rise in business – first, IFAs are now req- uired to talk about home reversions under MCOB and so they are on the agenda a lot more. Second, he says, with regulation of reversion due to come in by the end of 2006, customers and product providers will feel more confident that it is a long-term option being supported by the Government. Finally, he feels that the economic climate of low propertyprice inflation makes reversions more attractive to consumers.

But Couch considers there is a need for home reversions to become more flexible. He says one of the problems is that a lot of IFAs are not familiar with reversion plans and, in some cases, there is “a degree of prejudice” which means they do not sell it. He says: “As people become more aware of it and understand a bit more about how and where it is a more suitable option than a lifetime mortgage then I think the pendulum will start to swing.”

Lighthouse Group director field operations Mark Evans says: “For the last few years, the equity release market has been ready to explode but has not. I think it is about to happen. Home reversions are good in a stagnant market. This is why it has got an increased focus now.”

But he says, from a broker point of view, reversion is a fairly complicated product and takes up a lot of time and the proc fees are fairly low while training drives up costs. Overall, he says, it is not a lucrative product for brokers and the potential for problems is greater than for a standard mortgage.

However, Evans thinks that over the next couple of years, sales of reversion plans will double – a factor which Key Retirement Solutions managing director Colin Taylor thinks is dependent upon interest rates. He thinks if interest rates stay relatively low and property price inflation carries on, then sales will stay somewhere between 5 and 10 per cent. However, he says, if property price inflation stagnates and interest rates start to rise again then they could take up to 15-20 per cent of the market in his opinion.

He believes that IFAs do not know enough about the equity-release market and do not understand how reversions work. He says: “I do not think with the present environment, with the FSA saying that equity release is high risk, that many advisers will want to come into the market.

“The reversion market has to be more creative in the future. There are a few products which are supposed to be coming out into the market and if they are creative and they satisfy the customer then I think they will grow. But in their present state as a cash-reversion operation product they do not compete on the younger end for equity release.”

Norwich Union launched its home-reversion plan in early April this year. The company’s product development manager Brendan Kearns says it was driven to enter this market due to a number of factors.

The company carried out some customer research about 18 months ago and found that when both reversion plans and lifetime mortgages were fully explained to customers, around half opted for the reversion schemes.

Kearns says there were a number of reasons why reversion proved so popular. Customers, he says, feel it to be a simpler transaction and like the guarantee that a percentage of their property will be left to their estate and they also like the fact that can generally get more money with a reversion than if they were releasing the maximum.

Kearns says there is another factor which influenced the firm’s decision to enter the market. He says: “The bigger players went off the boil so we felt that the position of market leader was available in the market and a big brand could make a big impact on reversion.”

He says that having both a lifetime mortgage and a reversion product in the company’s portfolio means that different economic conditions are covered which ensures continuity in terms of business volumes.

Kearns believes it is up to the reversion providers to bring the products more into the IFA consciousness. He would like to see reversion business grow from present sales of around £50m to £200m within the next five years. But he says: “It is going to require investment in educating and turning on distributors as well as customers to the product.”

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