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Annie Shaw reports that the true potential of equity-release business is massive after new research shows that the vast majority of older people want to stay in their own homes rather than downsize

More than four in five people over 50 want to stay in their family homes rather than downsize in retirement and a third would not consider taking any financial help from their family.

A study of financial attitudes among Britain’s growing number of 50-plus homeowners for Bradford & Bingley found widespread reluctance to sell the family home to free capital for retirement. Thirty-five per cent still live in the first house they bought and most want to stay there. Eighty-five per cent say they want to stay in their home for as long as they can.

This reluctance to downsize is reinforced by a LifeForce survey, carried out by Age Concern, which found that owner-occupiers without mortgages who do not move before the age of 70 are unlikely to move voluntarily from their homes.

The obvious route for retired people who are reluctant to move would be to release equity which is becoming more popular with the increase in asset-rich, cash-poor older households, who are seeing booming house prices but suffering from income pressures caused by escalating council tax and dwindling pension values.

Financial research company Defaqto predicted last year that the equity-release market will nearly double, from 1.4bn this year to 2.4bn by 2008, with house price inflation being the driving force.

But in December, HBOS retail chief executive Benny Higgins said the group had changed its mind about offering equity-release products, which it had previously been considering.

The reason he gave was concern about the possibility of a regulatory backlash in the event of complaints from members of the borrower’s family.

Higgins said: “We will continue to study equity release but we do not know how the industry can provide robust products.”

HBOS spokesman Paul Fincham says: “We are keeping a watching brief. It is still a developing market and we would want a cast-iron compliant product before we make a move.”

The FSA, which already regulates lifetime mortgages and will also regulate homereversion schemes from next April, dismissed regulatory concerns. Spokesman Robin Gordon-Walker says the rules governing the sale of equity release already ensure the sales process is more careful and precise and that the implications for tax and benefits are taken into account when recommending a product.

The FSA has been trying to make sure that only equity-release experts get to deal with clients and has urged so-called “dabblers” to keep clear.

Back in the summer, after a mystery-shopping exercise, the FSA asked firms that were doing a small amount of business to pull out of the sector or pass the leads on to specialists.

Andrea Rozario, of equityrelease specialist IFA Rozario Harris, supports the move. She says: “I would like to see a well publicised central register of equity-release advisers, so that consumers could easily locate an expert.”

The Defaqto report points out that a lack of qualified advisers and solicitors is limi-ting the sector’s potential.

But some providers and intermediaries have been shifting position to align themselves where they want to be in the market.

Prudential was aiming for an 8-10 per cent market share in lifetime mortgages by the end of 2006. HSBC will offer equity-release products through branches from the beginning of 2007, making it the first national highstreet provider in the sector. New equity-release provider Stonehaven, headed by former Woolwich mortgages managing director Jayne Almond, launched in August.

On the advisory side, equity-release and annuity specialist Just Retirement, launched in April 2004 and the company recently floated on the Alternative Investment Market, raising 50m to expand the business.

Many intermediaries are seeing vast potential for equity-release business in the coming years, particularly as release rates have dropped below mainstream standard variable rates for the first time and are expected to fall into line with rates for long-term fixed-rate products, although the no-negative-equity guarantee could stop them falling further.

GE Life marketing and product manager Simon Little says rates have also become more flexible and now provide many of the same features as other mainstream mortgages.

The financial services consumer panel recently commissioned actuarial consultancy Watson Wyatt to undertake research into the value of equity-release products and provide a comparison of the costs, including the cost of selling and buying a smaller home.

It found that the cost-effective method was selling the home and downsizing. The next best option was a standard lifetime mortgage, and the most expensive by far was home reversion.

FSCP chairman John Howard says: “Many people see their house as a potential source of income when they get older but equity-release deals often do not look like good value.

“However, research seems to show that companies are not making excess profits from these products.”


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