Equity Release - UK - May 2008

Abstract

It has been predicted for some time now that the equity release market is set for strong growth, with a rapidly ageing but asset-rich population facing the realities of inadequate pension provision in retirement. Up until 2007, while there has been steady growth, a major boom in growth has yet to occur due to a number of factors such as negative media coverage, lack of regulation and limited access to advice, which have held the market back from reaching its full potential. Over the past year, however, with the industry achieving full FSA regulation and significantly raising standards for advice, it appears that a foundation has finally been set for the market to achieve the much-hoped-for growth.

In the short term, however, the equity release market still faces a number of issues before it can really take off. For example, full regulation and stricter standards for advice have increased the cost of compliance and are stoking fears of a shortage of qualified advisers, while unregulated copycat products have put a blemish on the market by being unfairly associated with equity release. Furthermore, consumer research has revealed that a large proportion of the population are still unlikely to ever consider equity release. On a positive note there is already evidence that industry stakeholders are already taking steps to address these and other issues.

This report examines the latest developments in the equity release industry, ranging from demographic and economic trends to the potential impact of increased regulation and competing alternatives. The Market Size section details changes and potential for growth in each segment of the equity release market, while the report also identifies the key players and their performance within the marketplace. Finally, consumer research highlights trends in home ownership and attitudes and behaviour towards the concept of equity release.

Key themes of the report:

• The recent decline in housing prices is causing a decline in homeowner confidence regarding the future build-up of equity in their property.
• The credit crunch is further delaying the entrance of big-name lenders into the market as their focus has shifted to supporting more traditional mortgage products.
• Full regulation of equity release products is a welcome development but the time and cost of compliance are causing concern about the availability of qualified advisers.
• Recent negative press associated with the previous generation of faulty equity release products as well as unregulated copycat sale-and-lease-back schemes have unfairly given modern equity release products a bad image.
• Consumer research has indicated that more than half of homeowners would ever consider equity release while only one in six think the concept is a good idea.
• The impact that equity release has on inheritance and in some circumstances entitlement to state benefits may make alternatives to equity release such as downsizing more attractive for some homeowners.