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Reversion resource

Nicola York finds that firms believe Adair Turner missed a chance to consider equity release for pension income

Experts are predicting a healthy market for equity-release products in 2006, forecasting particularly high growth in sales of home-reversion schemes.

Last week saw the third reading of the Home Rever-sion Regulation Bill which will legislate the regulation of home-reversion schemes and has been largely welcomed by the industry.

Ship chairman Jon King says formal regulation is likely to be in place by early 2007. The next stage is the FSA’s formal consultation period which will probably be completed by the third quarter of 2006.

Ship has campaigned for the last two years to bring the regulation of home reversion into the FSA’s remit. Reversion regulation is felt by many in the equity-release industry to be an important factor in boosting sales of the schemes.

King says: “The next 12 months are crucial. Regulation will greatly help boost consumer confidence. Figures from Ship show that home-reversion business is growing strongly and the need to raise standards of consumer protection is greater than ever.”

Key Retirement Solutions business development director Dean Mirfin says for the first time in years, home-reversion sales are increasing. He welcomes the increasing flexibility in reversion and lifetime mortgage schemes but thinks it will lead to problems of complexity.

He says: “These products are harder for advisers and consumers to understand. Any innovation is great news but we need products that are easy to understand.”

Norwich Union product development manager Brendan Kearns believes reversion sales will bounce back in 2006, driven by house prices and innovation in the market. He says NU is working on promoting the benefits of reversion and trying to educate consumers.

King says the industry is facing two major challenges. He says: “The first challenge is to get the message out to the public that equity-release schemes are far better value than they were 10 years ago and there is far wider choice available.

“The second challenge is to improve our advice standards as an industry. I would like to see more advisers getting involved in equity release.” He considers that the FSA could do more to encourage IFAs to give advice on equity release such as producing guidelines. He thinks advisers are not entering the market because of a lack of confidence and sees the certificate in lifetime mortgages as one way to help IFAs overcome this problem.

There have been develop-ments in the lifetime mort-gage market as well as in home reversions, with the main one being the rate war between providers. GE Life recently reduced its annual lifetime mortgage rate to 5.89 per cent.

Kearns says: “Rates are dropping far faster than money market rates and are very competitive. This year, we did not see huge growth in sales of lifetime mortgages but we did see new competitive growth, which is great for consumers. I cannot see any reason why this level of competition is going to change.”

Mirfin says headline rates are likely to be sustained into the new year. He says: “Up until the beginning of this year, we did not see a lot of manoeuvring with rates but then there was a period where interest rates started coming down.

“If you are considering equity release, there has probably never been a better time to do it.”

The Pensions Commission report has been a disappoint-ment to some in the industry, who feel that Lord Turner should have considered equity release more closely as a viable solution to the pension crisis.

The Council of Mortgage Lenders says the report is a missed opportunity for equity release. Senior policy adviser Laurence Baxter says: “The Turner report glosses over the role of housing equity in funding retirement income. This is a wasted opportunity as there is a great deal that could be done to ensure that equity release becomes a more mainstream part of the retirement income mix.

“With a current market size of only 4.6bn but unmortgaged equity of 1.15trillion, the potential for equity release in retirement income is huge but untapped.”

King says: “I think that sooner or later the Govern-ment should tackle equity release and think about it as a potential solution to the pension crisis. Ship is currently working with the Department for Work and Pensions to explain the benefits of equity release and the Government is showing an interest but at present it is not really relaying this information back to the public.”


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