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New release of life

The equity-release market has seen a fall in recent demand but remains fairly stable in comparison with the mortgage market.

Ship, the trade body for equity-release providers, recorded a 13 per cent decrease in sales for the first quarter of this year, down from 6,785 to 5,892, with £242.7m paid out compared with £293.9m in the same period of 2007.

Sales through intermediaries fell by 6 per cent in the first quarter from 3,925 to 3,682 although direct sales fell sharply by 35 per cent. This fall was mainly down to the fact that Northern Rock was one of the major direct players.

Key Retirement Solutions recorded a drop in new lending of 8.8 per cent for Q1 compared with the same period last year but business development director Dean Mirfin says this is hardly bad news compared with the mainstream mortgage market.

Providers such as Norwich Union, Prudential and Home & Capital saw sales increase in the first quarter, particularly in home reversion schemes which offer more certainty in a time of falling house prices.

While mainstream mortgage lenders have been tightening their criteria, demanding hefty deposits and pulling high loan-to-value products since the credit crunch began, equity-release products, criteria and terms and conditions have mostly remained stable.

But some providers have raised their rates, primarily those having difficulties accessing wholesale funding.

Norwich Union, Prudential and Just Retirement have used their annuity books to fund equity-release business instead of securitisation.

According to Prudential business director of retirement income Keith Haggart, being able to use the annuity book in this way has meant that extra costs have not had to be filtered through to consumers.

He says: “Prudential, Just Retirement and Norwich Union are big brands and I think the fact we are not relying on wholesale markets for funding is creating stability in the market.

“The equity-release market on a whole has not seen changes to criteria, LTV ratios, terms and conditions and eligibility like the mainstream mortgage market. It does not need to. Equity-release products are fixed for life.”

But Haggart says some building societies are moving away from equity release and using their limited retail funding to write mainstream mortgage business.

Mirfin says the products and terms available in the equity-release sector have remained pretty unscathed by the credit crisis and rates remain low compared with recent years. He says rates below 6 per cent are still available which is much in line with a year ago.

However, Mirfin notes that the credit crunch has had an impact on consumers’ confidence in the market.

“We have seen an impact on the number of inquiries we have had during the first few months of the year. We have recorded lower volumes but it has started to pick up now and should improve towards the end of the year.”

It is not surprising people have lost confidence, says Mirfin, given the publicity surrounding the problems in the mortgage market.

“It is understandable that if people keep hearing that their property’s value is falling and about credit problems in the market, consumer confidence has waned. The drop in enquiries is a result of negativity caused by the credit crunch rather than instability in the equity-release market. We are indirect victims of the crunch.”

Haggart believes that existing customers have confidence but that there are uncertainties in terms of the wider market and new business sales.

He says: “Short-term spending, for example, on a new car or doing up the bathroom, is often put on hold in times like these. It is not necessarily because they cannot afford it but because they think they could get a better deal from the car company or the bathroom shop down the line. This is having an impact on sales.”

But he also suggests that consumers who want to get a loan but cannot because lenders have tightened their criteria, may consider releasing equity in their homes instead, boosting the sector.

Ship director general Andrea Rozario feels the credit crunch will turn out to have a positive impact on the market in that it will attract brokers looking for new sources of income.

She says: “As mortgage business shrinks, brokers and also solicitors will look for new revenue streams. The key stakeholders will look at the market and take it more seriously now. There is no denying there is an increasing need for consumers to access information which will help them make informed decisions.”

Haggart says: “This is a difficult area because equity-release products require life and pension advice but are subject to mortgage regulation. The main concern here is that brokers are using a mortgage fact-find approach instead of coming at it from a retirement income angle but the FSA has recognised this and we have seen an improvement.

“Mainstream mortgage business is down so it is only natural that brokers will look for ways to supplement their income but whether they give the advice themselves or introduce business to someone with life and pension experience is another matter.”



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