Money Marketing Magazine - April 2007
Contributor : Jonathan Fry

Given life expectancy is increasing but levels of pension saving are falling, how big do you think the market for equity release products will grow to?

The equity release market is likely to continue to grow, given the contributory factors of increased life expectancy, falling annuity rates, low savings interest rates and lower levels of pensions saving. Exactly by how much it will grow is difficult to assess. Research carried out by the Council of Mortgage Lenders in 2005 showed a 25 times increase in the size of the market between 1995 and 2005, and the scope for further growth is massive. However, there are factors, such as interest rates and house price rises, which could impact upon future growth.

How much is the market for equity release dependent on increasing house prices? If house prices stabilise, or even fall, will the demand for equity release drop?

If house prices were to stabilise or fall, then the market would be affected, although demand would still remain due to the factors mentioned earlier, which are unlikely to change in the near future. There is also perhaps now a greater acceptance by today's elderly that there is less of a need to pass on the house as an inheritance and that the capital they have worked to acquire, including property, should be used to support them in retirement. Perhaps the greatest threat to this market, though, is a fresh mis-selling scandal.

Why do so few IFAs advise on equity release/lifetime mortgages?

Few IFAs currently advise in this area, and this may have something to do with concerns about the relatively lax regulation, which in turn could leave the industry open to future mis-selling claims, thus making IFAs wary of entering this market. The reputation of equity release also needs to be improved, with concerns over the relatively complex nature of products given the target market, and a number of IFAs still remember the problems of the old-style home income plans. In addition many IFAs will see equity release as very much a last resort option, with encouragement given to exploring other solutions first.

Will the introduction of regulation for the home reversion market do much to improve the reputation of the sector as a whole?

Regulation of home reversion plans will help to improve the reputation of equity release. However, there is concern that mis-selling claims could be brought against products in force prior to regulation, which in turn would have a damaging effect on this market.

© Money Marketing 2007