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Take the long view

While not hit as hard as some other sectors of the financial services industry, the start of 2009 has seen more evidence that the equity-release market has not been immune to the credit crunch.

The quarterly Equity Release Market Monitor compiled by Key Retirement Solutions has shown that both the number of plans and the value released from residential property have reduced this year as house prices continue to slide.

The amount of money released from residential property in the first three months of the year was £183m, down 24 per cent from £240m in the same period in 2008. The number of plans taken out has dropped to 4,703, 7 per cent down on the 5,059 plans taken out in the first three months of last year.

Key Retirement Solutions group director Dean Mirfin says the reduction in value of the plans is due mainly to falling house prices.

The average loan to value ratio for equity-release plans remains the same as this time last year, at 23 per cent, and the average age of the borrowers, at 68, is also the same. However, the average property value on which the loan is based is down 15.5 per cent, from £234,931 in 2008 to £198,335 in 2009.

Mirfin says: “While the total number of plans fell by just over 7 per cent, the dramatic fall in lending figures is impacted most by the drop in property values. The average property value for someone taking out equity release has fallen by more than £36,000.”

Mirfin notes that some borrowers may be waiting for house prices to recover, and despite the 7 per cent drop in new sales he remains upbeat about demand for equity release.

Key Retirement Solutions is not the only company to be optimistic. This month, trade body Safe Home Income Plans suggested that pensioners who own their own property could use the value in their homes to supplement their income.

Equity-release lender and annuity provider Just Retirement has also suggested that equity release could be an option for pensioners looking to boost their income.

Retirement specialist at Just Retirement Nigel Barlow says: “The combined effect of almost zero interest rates and a high rate of specific inflation, in contrast to the general RPI picture, mean pensioners could be suffering a dramatic fall in standards of living unless they have access to other sources of funds to shore up their income.

“Property owners who find themselves in this position will have access to funds from their home, which can be used in a number of ways to secure a higher income, pay off accumulated debts or meet one-off lump-sum needs.”

Although advisers warn against using equity release o tackle a short-term drop in income, for long-term retirement income or one-off expenditure, equity release continues to offer a significant potential source of funds.

In fact, rather than concentrating on short-term rises and falls, the real story of equity release remains its long-term potential.

The longer view is exactly what the Equity Release Solicitors Alliance was looking at when it launched earlier this year.

Launched in January of this year, the ERSA comprises seven law firms specialising in equity release. Chairman Claire Barker is focusing on the long-term increase in demand for the product: “If current predictions are correct, the equity release market will double in the next five years and by 2016 it is estimated that 42 per cent of the population in England and Wales will be eligible to take out an equity-release plan.”

Safe Home Income Plans has also got its eyes on the longer term and is carrying out a consultation on the future of the equity-release market. The organisation plans to publish a discussion paper looking at the future of the market at some point in the summer.

The paper will take a look at the whole of the equity-release market and consider what, if anything, is holding it back. This includes consumer understanding of the product, ease of access to lenders, associated risks and avail- able products.

As part of the consultation, Ship has teamed up with law firm Eversheds to hold a debate on the future of equity release. Taking place on April 28, it will cover topics ranging from the future of the equity release market to whether it can provide a solution to the pension crisis.

The presence of BBC Moneybox presenter Paul Lewis and consumer association Which? should ensure it is more than a cheerleading exercise for the industry and that some workable long- term proposals emerge.

Ship director general Andrea Rozario says: “This is an exciting year for equity release with the planned launch of our white paper in the summer which will set the agenda for this industry in the coming years.

“Now is the ideal time to hold this type of debate as it gathers together the important stakeholders and encourages them to air their thoughts about the industry.”

As with the rest of the financial world, the credit crunch has caused some setbacks for equity release. But, unlike many other areas, the industry still has reasons to be positive. There remains the potential for a significant increase in business. All it needs is to find a pop- ular way of unlocking it.


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(Another) downhill stroll — retirement planning

A report published this morning by the CIPD (CIPD Employee Outlook March 2015) provides yet more interesting data to the changing landscape of retirement planning. It should be remembered that we are in a period of genuine flux here given that the default retirement age was scrapped three years ago, and new pension freedoms come online in April. Both of these alterations will have a huge impact on how employees plan for their retirement.


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