Punching above its weight

Equity release may have endured turbulent times but Peter Welch believes the future is bright

The equity release market has always been adept at punching above its weight in terms of the media coverage it generates. Its main players, perhaps more than any other sector, have worked hard educating the wider general public about the solutions they can provide while also attempting to dispel some widely-held myths about equity release.

That said if you were to take recent events at face value you might come to the conclusion that the equity release sector has hit something of a plateau. The Credit Crunch and liquidity crisis, while not affecting equity release as immediately as some sectors, has had an effect. We only need to look at the recent spate of providers leaving the sector to see that funding is very much an issue. However, while some commentators might see this as a sector in free-fall, this is not the case. Obviously, when a major player such as the Prudential decides to stop new lifetime mortgage lending this will cause some concern, however, the other lenders who dropped out of the sector were not what we would call the leading lights of the industry.

The fact of the matter remains that in a wider mortgage market which has seen lending levels fall back dramatically, the latest SHIP figures for equity release business year-on-year only show a decrease in the value of the equity release market from £303.3 million (Q3 2008) to £236.3 million (Q3 2009). We currently await the final figures for year end 2009 but we should anticipate a similar picture.

Moving forward

So, what of the equity release market in 2010? How is it moving forward and what will be the major themes of the year? Firstly, it is important to highlight the importance of the intermediary/adviser in the equity release sector. SHIP’s figures for Q3 also show a 10% increase in sales through intermediaries and this is extremely positive news.

These figures seem to indicate that the message is getting through and that potential equity release customers are actively using advisers to learn about the sector, the products, the potential benefits and problems that may be encountered. As the sector grows, one fully expects the importance of the equity release adviser to grow with it.

In a year in which we will definitely have a General Election, the political issues surrounding pension provision, the costs of long-term care and how we fund our retirement will come to the fore. It has to be said that politically the Government has often been blinkered about equity release. However, this wheel is also turning and we find ourselves, particularly because of the work SHIP undertakes, with much wider understanding and support from MPs and ministers.

In that sense 2010 is a critical year and when a new Parliament (and possibly Government) is formed there will be an absolute need to look at the problems we as a country face and to finally accept that equity release will help in addressing them. We, as a nation are sitting on trillions of pounds worth of housing equity and yet some people are too scared to put on their heating in these icy conditions, because they are afraid of the bills.

Evolving market

Equity release products have, and will continue to, evolve to meet the changing needs of the population. For instance, once it was thought that a home reversion plan should only be used when the individual wanted to release the maximum amount from their property. This is not the case, customers can now access a percentage of the value safe in the knowledge that they can access further amounts later on or are able to leave the rest as part of an inheritance. I fully expect a considerable number of new product innovations to work their way into the market in order to meet changing needs and circumstances.

The equity release sector is continually evolving and, as previously mentioned, market players have been successful at innovation and education. There is still however, a need to grow and develop the overall equity release message to ensure that those who could benefit are not left unawares of a potential solution to some of the problems they may be confronted with.  It is therefore to be hoped that 2010 is a year in which the equity release sector not only continues to punch above its weight but that the message is heard by as many people as possible.

Peter Welch is head of sales & distribution at Bridgewater Equity Release