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Trillion pound baby

The equity-release market is now 25 times its size a decade ago, with a total value of just under 4bn and over 83,000 lifetime mortgages. More than 15,000 lifetime mortgages – equity-release loans for older homeowners – worth 693m were advanced in the second half of 2004, according to research by the Council of Mortgage Lenders.

The recent exhaustive Institute of Actuaries’ report on equity release estimated that people over 65 hold more than 1trillion in unmortgaged housing wealth which suggests there is the potential for a significant expansion in equity-release lending.

Growth so far has been constrained by caution on the part of consumers and lenders. Consumer research for the CML last year suggested that people in their 40s and 50s are much more likely to tap into their housing equity in old age than those currently aged 65 or over. On this basis, lending of around 2bn a year looks likely within the next five years. If more big lenders decide to offer lifetime mortgages, and consumer attitudes change to reflect the changing environment, the market could expand to the 5bn a year predicted by the Institute of Actuaries.

Last year, the CML undertook research with Hanover Housing Association looking at how the attitudes of people in the age groups 45-54, 55-64 and 65-80 towards their homes and housing wealth might change.

The table here shows people’s housing plans for retirement by age. Over half of all those who are outright owners want to stay in their current homes, including 72 per cent of those in the 55-64 age group. Of those who own with a mortgage, 57 per cent of those aged 55-64 want to stay in their current home, as do 76 per cent of those 65-80. Those in the 45-54 age group seem to have a slightly more flexible attitude to their homes and are more prepared to trade down or move abroad.

Thirty-nine per cent say they expect their standards of living to decrease a little while 11 per cent expect their standard of living to fall significantly.

The chart here shows the percentage of outright owners or those with mortgaged properties who anticipate using the equity in their homes to help fund their retirement. Fifty-two per cent of those with a mortgage and 46 per cent of those who own outright in the 45-54 age group anticipate using the equity. Although this figure reduces with age, there is still a high proportion of people who would consider using the equity in their property.

Awareness of equity-release schemes is very high, with 80 per cent of those who have a mortgage and 82 per cent of those who own outright having heard of them. Seventy-eight per cent of men are aware of such schemes compared with 74 per cent of women. When homeowners are split by social grade and age group, awareness is as high as 86 per cent for AB, 87 per cent for C1 and 86 per cent for 55-64-year-old outright owners.

It is perhaps reassuring that those who are outright owners have greater awareness than mortgage holders, as they are more likely to use such a scheme. However, there does seem to be lower awareness among social groups D and E and this is also true of homeowners in lower-income groups.

The research shows that 94 per cent of mortgage holders with incomes above 50,000 and 99 per cent of outright owners with incomes between 35,000 and 50,000 have an awareness of equity-release schemes. These findings may have implications for marketing and targeting of products by lenders and intermediaries.

In recent months, a number of new initiatives have strengthened the equity-release market. Since October 31, lifetime mortgages have been subject to their own specific FSA requirements. This should help to underpin confidence in the market. To complement the new FSA requirements, the CML has produced a set of good practice notes for the sales process to help lenders and advisers to have confidence that they comply with the FSA rules. These are available on the public area of the CML website, at www.

The CML has also produced a leaflet to describe the main potential impacts on tax and benefits of taking out a lifetime mortgage and has developed a software solution called Fintal with Ferret Information Systems, to enable lenders and advisers selling lifetime mortgages to calculate the impact on their clients’ own circumstances, as required under FSA rules. Further information on Fintal is available at

It is fair to say that consumers and the industry are still somewhat wary of the equity-release market. However, with the regulatory system that now applies to lifetime mortgages, backed by resources to help lenders and adv- isers have confidence in their compliance, there is every reason to expect market confidence and activ- ity to increase.

Regulation of home-reversion schemes, announced but probably not likely to be implemented until 2006, is the final piece of the jigsaw that needs to be completed to improve conf-idence in the market as a whole. The recent emergence of big-name lenders into reversion and lifetime mortgage products augurs well for future growth and the CML expects interest in this market to develop.


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