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Key Retirement Solutions business development director Dean Mirfin maps out the equity-release boom.

The market for equity-release products is growing as increasing numbers of pensioners face retirement with substantial equity in their homes but less in their pensions and bank accounts. The speed of this growth has caught many by surprise and was confirmed by our UK equity-release monitor for the third quarter of this year.

Analysis of our figures and data from Safe Home Income Plans shows that the value of equity-release plans taken out in the third quarter was 379m,a rise of 31 per cent on the second quarter. The number of plans rose by 23 per cent to 8,078.

This brings the value of equ-ity-release plans sold this year to 938.3m, which puts the ind-ustry on course to exceed £1bn easily by the end of the year(Key Retirement Solutions forecasts 1.15bn). Outstanding equity-release plans are currently valued at 3.9bn, representing over 84,000 plans.

Regional analysis of new business trends reveals that the fastest growth in the number and value of plans has been in the Midlands (the West leads on value with an 84 per cent increase) and the North. This reflects the strong house price growth that these regions have seen over the past two years.

All other regions apart from London saw double-digit growth, with the East Midlands on 54 per cent, the North-east on 54 per cent and Yorkshire and Humberside on 51 per cent. The South-west saw growth of 47 per cent and Wales 43 per cent.

Counter to the national trend, the value of equity-release plans in London fell by 13 per cent, reflecting a levelling out of historically strong demand.

Equity-release plans in the North, while generally smaller at £41,000 compared with a nat-ional average of £49,115, saw a higher overall growth in value of 48 per cent in the last year compared with 31 per cent for the entire country.

The average age of an equity-release borrower fell from 71 to 70 in the second quarter. The loan to value ratio was 25 per cent compared with 24 per cent, being typically a £49,115 release (Q2 – £45,956) on a £197,000 property (Q2 – £193,044).

Intermediary-introduced business increased to £239m from £174m, reflecting cutbacks in some direct salesforces by a number of major financial life companies such as AMP and GE Life.

Reversion plan sales remained low, accounting for only 176 plans sold compared with 7,030 lifetime mortgages in the third quarter. This is understandable due to regulatory worries as well as speculation as to the tax liability faced by reversion policyholders under schedule 15 of the Finance Act 2004.

However, these worries have been put to rest with confirmation that bona fide equity-release schemes with arm’s length providers will not be affected. Due to the widening perception that the housing market is peaking in price terms, the relative attraction of reversion schemes – which involves the sale of a home – becomes greater again, suggesting that their popularity will improve over the next year.

What has prompted this strong quarter of growth? In our experience, Q3 has traditionally provided the best growth as people seek to organise their finances before the festive period but the 31 per cent growth cannot be solely attributed to this.

We believe that releasing equity to fund retirement is becoming an increasingly acceptable option for many people, prompted by the following factors: Ship’s tough new code of practice for reversion schemes as well as the regulation of lifetime mortgages under the new mortgage regulation code which have created new levels of consumer confidence. An increasing number of pensioners who are seeking to supplement their retirement income and take advantage of phenomenal property price growth. Growth in equity value has been very strong over the last 10 years,with outstanding total equity in residential property in the UK now amounting to well over £;2.2trillion.

Estimates suggest that over £1.03trillion is available to people over 60, which leaves huge scope for market growth. The increasing number of pensioners who are facing mortgage and personal debts well into retirement. Recent figures from Economic Lifestyle showed over-65s currently owe more than £8bn. The poor performance of traditional pension products over the last few years.

These factors are unlikely to improve or change substantially over the next few years which means that the equity-release market will grow. We predict that business growth next year will be vigorous as these issues continue to affect the market and new mainstream lenders enter the market after mortgage regulation.

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