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Release your potential

The equity-release market is awash with new products, players and speculation about the huge potential for growth, with recent entries from Norwich Union and future moves from the likes of Bristol & West and Prudential.

Add to this GE Life’s decision to slash interest rates and it seems competition is heating up in this expanding market with the chance for more IFAs to take advantage of business apparently on offer.

Ship chairman and Hedge Equity Release managing director Jon King says the growth in equity release is a huge opportunity for IFAs to move into the market and take up the challenge of fully understanding this complex area. King says: “The issue of equity release is not one of demand – there are plenty of providers out there – but one of good advice.”

King says, in the past the market was dominated by direct salesforce but this year predicts about 65 per cent of the business will go through IFAs. He can only see this getting bigger and urges more brokers and advisers to specialise by taking the CII exam CF7, on lifetime mortgages, launched last month.

Key Retirement Solutions business development dir-ector Dean Mirfin says, more brokers and IFAs should be looking to specialise in equity release but he brings up the difficulties of researching products and having enough resources to make sure clients are getting the best deal.

Mirfin says there is no sourcing software involving all Ship members, although The Exchange has many on board. He also raises the dangers of not researching all of the market. “There is the potential for future misselling claims if you have not recommended the lowest-cost opt-ion after you take other issues into account. This is a daunting task,” he says.

Helen Brow financial services director Kathy Tedstone says: “A few years ago, there were only a few lifetime- mortgage players, making research of the market relatively easy but now it is far more demanding. The more competition the better but it is time consuming.”

Tedstone specialises in lifetime mortgages but be-lieves the home-reversion market is also certain to in-crease, citing the recent move by Norwich Union.

Mirfin agrees with Grain- ger Trust projections that home reversion within the equity-release market will grow this year from its current level of 3.5 per cent to 10 per cent by the end of the year. He says Key accounts for 25 per cent of Ship business and 10 per cent of that is already through home reversion. Mirfin says he can see this continuing to grow be-cause of mortgage regulation stipulating that advisers must offer alternatives such as home reversion, even though it is not regulated.

He believes GE Life’s move to cut its lifetime-mortgage rate to 6.69 per cent shows the increase in comp-etition in the market but does not necessarily mean others will follow suit.

Mirfin says other providers are vying for business on other levels by competing on lending values or offering ervices such as drawdown and low interest rates are not the only consideration.

But GE Life product manager Simon Little says interest rates are the most important feature of equity release, according to all available research. He says the decision to lower interest rates was taken after realising that the current rate was not competitive.

Little says it will be interesting who follows GE’s lead but does not envisage a price war developing, although he can only see the market be-coming more competitive as providers and IFAs increasingly see the profit potential of equity release. He says: “I see more distributors entering the market as well as a few big players. I would be very surprised if someone such as HBOS or Nationwide does not enter the market within three years as they can see how much they are losing out.”

Little says GE is looking at moving into income drawdown as no area of the market can be ignored and suggests home reversion will continue to increase, especially if it becomes regulated which he expects by mid-2007.

Bristol & West is yet to be convinced of the profits to be had in the rest of the equity-release market as it prepares for the launch of its lifetime mortgage in mid-May. B&W head of marketing Dominic Toller says the firm is concentrating on a lifetime mortgage.

Toller says: “We are flex-ible and market strategies change over time but we are only launching a lifetime-mortgage product. We will be open to advice from brokers and advisers but have decided to focus on this area because of its huge potential.”

Norwich Union was the first big name to enter the home-reversion market in April. Equity-release head of marketing Nigel Spencer says most new players to the market, such as B&W, will start by concentrating on lifetime mortgages as they do not have NU’s experience.

Spencer says by offering home reversion, alongside its other products, it is plugging holes in the market and giving customers more flexibility and choice to take into acc-ount factors such as future house prices.

He agrees with the general consensus that it is an exciting time for equity release and is encouraged by the increase in competition which Spencer believes will lead to more innovation, including the latest move from rival Prud-ential. He says: “We are glad to see Prudential finally following NU’s lead and committing to a market we have been in since 1998.”


Lifetime’s experience

The FSA’s regulations have undoubtedly been a major burden on those operating in the lifetime mortgage sector. This is endorsed by many product providers as well as our own experience.

Abbey made FSA threat after fee error

Abbey has been forced to apologise to Abacus Assurance Financial for threatening FSA action against the broker for the return of money that it had incorrectly paid to another company.


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