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The key to opening up equity release

Product providers and advisers are scrambling to get on board the equity-release bandwagon as industry estimates point to a potential market size of £100bn.

Leading mortgage broker London & Country revealed last week it is planning to set up an equity-release team while Hargreaves Lansdown set up an operation with a team of three the previous week and Zurich Advice Network has added Northern Rock&#39s equity-release products to its panel.

Further entrances are expected, with Charcol senior technical manager Ray Boulger saying: “Any mortgage adviser of a reasonable size needs to be in the equity-release market.”

Hargreaves Lansdown head of mortgages Ian Jordan says: “It is inevitable that we will see more advisers moving towards equity release – like us, they see it as an opportunity.”

The market is already seeing explosive growth, with the latest figures from the Council of Mortgage Lenders revealing that £498m was borrowed by older homeowners in the form of equity-release mortgages in the first half of this year – 121 per cent more than the £225m seen in the first half of 2002.

Advisers are keen for product providers to move into equity release as they want to see competition. London & Country mortgage specialist David Hollingworth says: “We want the equity-release market to become more competitive as that would drive down rates.”

The market is dominated by Northern Rock and Norwich Union which hold about 90 per cent of the total.

But Key Retirement Solutions business development director Dean Mirfin says: “I can confirm that four new lenders will be entering the equity-release market by the end of the year.”

Norwich Union, which claims a share of 45 per cent, is keen to see further entrants. Spokesman Ian Beggs says: “We have felt for a while that having a market share of more than 40 per cent is unsustainable and is not going to last.”

Standard Life has already revealed its plans to enter the sector and Bradford & Bingley&#39s specialist lending arm Mortgage Express is planning a move. Mortgage Express head of business development Tim Sturley says: “At the moment, the equity-release market is pretty much dominated by NU and Northern Rock. We will be entering the market in the near future and I am sure that other niche product providers will too.”

Skipton Building Society has been tipped as a likely entrant along with Yorkshire Building Society but both say that while equity release is on the agenda, it will not happen in the near future.

Abbey National is running a pilot scheme through Key Retirement Solutions and selected branches. Scottish Widows recently signed a deal to become Saga&#39s sole equity-release provider.

It is generally felt that the equity-release market needs the entrance of HBOS or Nationwide to boost the all-around reputation of the sector. Jordan says: “If there is any stigma attached to equity release, then the more good quality companies that come on board the better.”

Prudential national mortgage manager John Malone says: “Lenders see this as a new development market, primarily because of the situation facing so many pensioners at the moment. So many people are finding they have a shortfall in their pension when they retire, so releasing equity from their property is one of the only ways to find an income.

“Another reason that equity release is growing is the shortfall in endowments. Together, these issues mean that more people are looking at equity release.”

At present, the equity-release products available are fairly standard. Boulger says: “The choice of equity-release products is limited, with the vast majority requiring you to take a lump sum.”

Hollingworth says: “I would like to see a flexible drawdown product being developed by lenders, which would enable consumers to take out money as and when they need it rather than being forced to take a lump sum.”

Malone has a good idea of what he would like to see. “The way forward will be a product built round a flexible mortgage that develops into an equity-release mortgage. So if a 50-year old cannot afford to pay back the interest on his mortgage, instead of moving into debt he can amortise the debt and get an equity-release mortgage with the same lender.”

Malone and others are keen to make it clear that the product is not suitable for everyone. Malone says: “This is very specialist and only for a limited group of people. It has to be sold properly as the group of people it does suit are vulnerable.”

Many in the industry are concerned about the Treasury&#39s failure to include home-reversion plans in its remit for mortgage regulation.

Action is being taken by the ABI, the CML and Ship, along with product providers such as Norwich Union and Britannic Retirement Solutions which are working towards voluntary regulation of home-reversion plans once FSA mortgage regulation starts next October.

It is expected that product providers which have been hesitant about equity release will make a move when mortgage regulation starts. Nationwide, in particular, has made it clear that it wants the FSA to lay down strong regulatory guidelines before it will bring out a product.

Mortgage Intelligence managing director Sally Laker says: “Equity release is the new hot potato. Once lenders are not risking their reputations by going into it we will see a big influx.”


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