Equity Release - UK - May 2009

Table of Contents

• Issues in the Market
• Key issues
• Market background and definitions
• Lifetime mortgages
• Shared appreciation mortgages (SAM)
• Home reversion
• Regulation
• SHIP
• Taxation and benefit issues
• Abbreviations
• Market in Brief
• The market falls but is weathering the crunch well
  • Figure 1: Total value and volume of new equity release sales, by SHIP members, 1997-2009
• The future is bright
• Drawdown mortgages drive the market as consumers opt for flexibility
  • Figure 2: The breakdown of the sales of equity release plans, by type of plan sold, 2006-09
• Providers respond with new products
• Norwich Union and Prudential dominate the market
  • Figure 3: Estimated equity release market share+, 2008
• An intermediary-led market
• Providing an income in retirement the top reason for releasing equity
• 13 million potential targets but 6.6 million to really aim at
  • Figure 4: Key sales targets for an equity release offer among homeowners aged 45+, January 2009
• Internal Market Environment
• Key points
• Tighter regulation
• Regulation in Europe
• Not enough brokers
• Constant monitoring
• Still a lack of high street banking names...
• ...and past misdoings still taint the industry' s image
• Sale and rent-back risks doing further damage...
• ...but tighter regulation is on the cards
• Asking the industry
• A lack of support from the government
• Equity release and IHT
• Broader Market Environment
• Key points
• The old shall inherit the country...
  • Figure 5: Population breakdown, by age (million), 2006-30
• ...as people live longer and spend longer in retirement
  • Figure 6: Life expectancy (years) or males and females aged 55+, by current age, 2005-07
• Implications
• The GOTYs are on the march
  • Figure 7: Seniors with a young outlook on life, May 2008
  • Figure 8: The areas over-65s want to spend more on, May 2008
• Lifestyle factors the main motivator for equity release
  • Figure 9: The main motivation for taking on an equity release scheme among Key Retirement Solution new business customers, 2007 and 2008
• The correct targeting of equity release schemes is needed
  • Figure 10: Classification of over-65s (000), by their financial situation, April 2008
• Increasing retirement age
• More older owner-occupiers
  • Figure 11: The number of owner-occupiers aged 60+, by age, 2006-26
• More housing wealth for seniors...
• Figure 12: The housing wealth for adults aged 60+, by age, 2006-26
• ...but the decline in housing prices will have a short-term impact
  • Figure 13: Average mix-adjusted UK house prices (£), Feb 2002-Feb 2009
• Falling interest rates
• Implications
• Loss of lending capacity
• Competitive Context
• Key points
• The key alternatives
  • Figure 14: Alternative sources of retirement income
• Buy-to-let
• HEW and remortgage
  • Figure 15: Housing equity withdrawal (seasonally adjusted), Q1 2000-Q3 2008
• Downsizing
• Sale and rent-back
• Strengths and Weaknesses in the Market
  • Figure 16: Equity release products -- strengths and weaknesses in the market, 2009
• Market strengths
• Remaining in the home and tenure
• Competitive products cannot generate income
• Equity release market now fully regulated
• Rapidly ageing population
• Weaknesses
• Equity release can be limited
• Requires capital
• Credit crunch
• Potential shortage in the number of qualified advisers
• Market Size and Forecast
• Key points
• The crunch bites but not too hard
  • Figure 17: Total value of new equity release sales by SHIP members, 1991-2009
• Average value of loans in decline as the number of new sales also dips
  • Figure 18: Total volume of equity release sales and average value of loan, by SHIP members, 1997-2009
  • Figure 19: The annual percentage change in new business value and plans sold, 1998-2009
• Forecast
  • Figure 20: Equity release forecast, 2004-14
• Long-term growth likely
• Factors used in the forecast
• Segment Performance
• Key points
• Drawdown mortgages the growth sector
  • Figure 21: The breakdown of the sales of equity release plans, by type of plan sold, 2006-09
• Lifetime mortgages now hold 97% of the market
  • Figure 22: The value and volume of new lifetime mortgage sales, 1997-2009
• Falling average values
  • Figure 23: The average value new lifetime mortgage sales, 1997-2009
• A tough time for reversion products
  • Figure 24: The value and volume of new reversion plans, 1997-2009
• Market Share
• Key points
• A new order in the market
  • Figure 25: Estimated equity release market share+, 2008
• Companies and Products
• Key points
• Flexibility and simplification
• Norwich Union revamp
• LV= Flexible Lifetime Mortgage
• LV= age banding
• Lower rates
  • Figure 26: Examples of the rate charged on lifetime mortgages, April 2008
• Marginal falls in loan to value
• The big banks: can' t play, won' t play
• Profiles of the main providers
• Norwich Union Equity Release Limited
• Prudential plc
• Just Retirement Solutions
• In Retirement Services
• New Life Mortgages
• Hodge Lifetime
• Profiles of other providers (ranked alphabetically)
• Bridgewater Equity Release (Granger Plc)
• Coventry Building Society
• LV=
• Milton Homes (Retirement Plus)
• National Counties Building Society
• Northern Rock Plc
• Partnership Home Loans
• Saffron Walden Building Society
• Sovereign Reversions Plc (Home and Capital)
• Stonehaven
• Profiles of major advisers
• Age Partnership
• Key Retirement Solutions (KRS)
• Equity Release Solutions
• Brand Communication and Promotion
• Key points
• Main media spending rising
  • Figure 27: Main media spending on equity release plans, 2004-08
• Direct mail the dominant form of promotion
  • Figure 28: Main media spending on equity release plans (£000), by media channel, 2004-08
• Aviva continues to spend the most on advertising
  • Figure 29: Top ten equity release advertisers, 2004-08
• Channels to Market
• Key points
• Intermediary sector of growing importance
  • Figure 30: Breakdown of value sales of equity release products from SHIP members, by distribution channel, 2003-09
• ...and now responsible for almost two thirds of plan sales
  • Figure 31: Volume sales of equity release products from SHIP members, by distribution channel, 2003-09
• Intermediaries sell almost 18,000 plans in 2008
  • Figure 32: Volume and value sales of equity release products from SHIP members, via intermediaries, 2003-09
• Direct sales falling close to £200 million
  • Figure 33: Volume and value sales of equity release products from SHIP members, via direct channels, 2003-09
• More than a third say they had or would seek the help of an adviser
  • Figure 34: Agreement with statements about arranging equity release, February 2008
• Search for wider distribution
• LV= and Intrinsic
• Key Retirement Solutions Premier Partners
• Intermediaries are getting more support
• The Consumer -- The Target Market
• Key points
• Almost 13 million potential targets
  • Figure 35: The number of over-55s owning their home, January 2009
• Affluent adults more likely to have equity but don' t ignore the less affluent
  • Figure 36: The percentage of over-55s owning their home, by socio-economic group, January 2009
• Most over-55 homeowners are reasonably comfortable
  • Figure 37: Home ownership, by ACORN group, January 2009
• Use of equity release has barely scratched the surface
  • Figure 38: The equity release market, by age, January 2009
• Less affluent adults constitute over 50% of the market...
  • Figure 39: The equity release market, by socio-economic group, January 2009
• ...and an ample supply of potential new customers in the next 20 years
  • Figure 40: The proportion of homeowners, by age, January 2009
• Mortgage debt to decline for potential equity release targets
  • Figure 41: The average length of time before a mortgage is paid off, by age group, January 2009
• The Consumer -- The Uses of Equity Release
• Key points
• Immediate needs drive the market...
  • Figure 47: Reasons for releasing equity, 2008 and 2009
• ...but a different set of priorities for the key targets
  • Figure 48: Reasons for releasing equity, by target group, January 2009
• Implications and opportunities
• Lifestyle factors more important for adults pre-retirement
  • Figure 49: The main motivations for taking out an equity release plan, by age and lifestage, January 2009
• Implications and opportunities
• C1C2s focused on income generation
  • Figure 50: The main motivations for taking out an equity release plan, by socio-economic group and ACORN group, January 2009
• Appendix -- The Consumer -- The Uses of Equity Release
  • Figure 64: The main motivating factors for taking out an equity release plan, by demographic sub-group, January 2009