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Release valves

The main feeling in the industry is that the equity-release market has turned the corner and opportunities are evident. Rachael Adams reports


Safe Home Income Plans has published the results of its sixth annual members survey, which reveals a remarkably upbeat outlook from much of the industry.

Director general Andrea Rozario said: “Over the past 12 months, we have seen a growing acceptance of equity release as a retirement planning option among consumers, advisers and the Government. With longevity increasing and the Government making it clear that the state will not be able to provide all-encompassing retirement funding, other options must be considered.

“There are many opportunities for growth and engage-ment and the appetite to do so is evident among providers.”

This is not the first time that the industry has claimed there is significant growth just around the corner. But the market has had a poor last couple of years, with lending figures down and providers with-drawing from the market.

So, what makes anything different this time?

IFA and Independent Equity Release Adviser Alliance spokesman Dermot Brannigan says: “Things are much more positive than they were 18 months ago. There are more products and new providers, which suggests more funding.”

However, More 2 Life managing director Jon King recommends combining this optimism with caution.

King says: “We have turned the corner and while things are improving, I would use the term guarded optimism.”

King: ’Older people who are seeing their incomes falling have sparked a trend towards semi-retirement. The want access to their wealth so they are using equity release’

King disagrees with the 60 per cent of Ship respondents who predicted new market entrants and says: “I do not think we will see any major new names but we are seeing increased interest from the annuity market.”

The key driver behind this increased interest in the UK’s growth remains increased longevity. Average life expec-tancy figures have been increasing by a rate of 2.5 years per decade, according to MetLife, which means more funding is needed for a longer retirement.

An older Britain facing cuts in state pension provision and falling numbers of people with final-salary pensions mean equity release is more likely to be seen as a viable retirement funding option. Sixty per cent of Ship respondents think the Government will turn to equity release to help close the pension gap.

Brannigan sees the pension gap as a key market driver. He says: “People are finding their pensions won’t sustain them. This means more are falling back on their biggest asset – their property.”

Two commissions are due to report on these issues later this year, which may have informed Ship’s response.

The Government-appointed Dilnot Commission, due to report in July, will make recommendations on sustainable funding for long-term care once state provision is cut and has made noises about exploring equity release. The second report is due from The Workplace Retirement Income ComKing: ’Older people who are seeing their incomes falling have sparked a trend towards semi-retirement. The want access to their wealth so they are using equity release’mission, chaired by Lord John McFall and backed by the NAPF, which will present its findings on how to improve retirement income provision in October.

King suggests that the industry does not rely on Government-backed reviews to boost its fortunes. He says: “Government thinking around the industry has always lagged behind the market.

“All previous reviews have fallen shy of making a definite statement on equity release. Ship is trying to promote things to the Government but I don’t think we will see it change its position this year.”

But Brannigan is more optimistic. He says: “I think it is inevitable that it will take notice. We are moving to a state where people are being told to look after themselves after 13 years of a Government where the state provided for them.

“This could mean people will start saying, ’Maybe I should use what I’ve built up’. The Government needs to raise awareness of the untapped equity in property.”

A lack of awareness is the industry’s key challenge, King believes. There is still a lingering reputational problem for equity release. But King says change may be in the air. “Older people who are seeing their incomes falling have sparked a trend towards semi-retirement. These baby boomers want access to their wealth so they are using equity release, knowing that in 10 years’ time, they will downsize their homes and repay the debt.”

Brannigan agrees that baby boomers could hold the key to kickstarting the market.

He says: “They have a lot of equity. And they are different from their parents’ generation in terms of attitude. People in their eighties are still scared about owing money and see debt as a millstone but baby boomers don’t.”

King agrees. He says: “Baby boomers are accust-omed to debt. They’ve had credit cards mixed with property lending so they feel comfortable borrowing against their property. That will drive the industry.”

Both Brannigan and King say there is also a change in attitude towards home-ownership which is also becoming apparent.

“Over the last 20 years, this concept of the family home has become less popular,” says Brannigan. “The UK is different from Europe, where the parents die and the children move back into the home. Children now would rather see their parents enjoy themselves because when they’re gone, they’re gone.”

Although all this is good news for the industry, there is still some way to go.

King says: “The challenge has always been demand. Currently, only 20,000 new plans are drawn up per year, which is a very small proportion of mortgage lending. We need to get the message of accessing the wealth tied up in property out to the public.”


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