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Is more flexibility needed in the equity release market?

The arguments for equity release are well thought out and hard to refute. But while the equity release market has been growing quickly in recent years, the surge in demand anticipated by many people, including the many mortgage lenders that have moved into this market in the last year or so, has yet to materialise.

According to figures from HBOS, the value of UK housing stock hit £4trn in 2007, with equity held in residential property worth £2.8trn. While these figures will have taken a dent in the last 12 months, that is still a lot of money tied up in housing.

Add to this is the fact that those with the most tied up in property are likely to be those closest to, or past, retirement age and you should, the argument goes, be seeing a surge in lending similar in scope to that in the mortgage market but so far this has not materialised.

One argument for why this has not happened so far was put forward by IFA HFM Columbus last week.

The firm says that demand does exist but it is the products on offer that is putting people off.

Gary Festa, HFM Columbus mortgage director, says demand for equity release is high even amongst the holy grail of equity release customers – the high net worth market who are looking to equity release as a lifestyle choice rather than necessity. But the one thing holding them back the type of loans on offer.

“The problem is that lenders are not offering the kind of equity release product that potential borrowers want,” says Festa.

He says in the current low interest rate environment the current fixed rate deals at 6 per cent are offering poor value.

He reports that clients are looking for a tracker rate, perhaps with a cap to limit the impact of any future increase in rates, to take advantage of a situation where interest rates are low and could go even lower.

Could it be that this is the key to unlocking the pent up demand for this alternative source of retirement funding?
If it is and lenders can get it right, the rewards for the lenders is a handsome one.

As Festa says: “Lenders have a golden opportunity to do well in one of the few potential growth areas of the economy. But they need to deliver the kind of products people actually want.”

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