Q. Why was SHIP formed and how many members does it have?
SHIP was formed due to the response from the industry to some of the inappropriate schemes marketed at the end of the 1980s.
Back then some of the schemes offered a variable rate of interest and this did lead to some pensioners finding themselves in the position where they owed more than their houses were worth. This was clearly unacceptable and such plans have since been banned. Following this, it seemed necessary to set up some minimum standards and a recognisable symbol that clients could look for when buying schemes so they would know that their plans carried these standards. In 1991, SHIP was formed by a group of product providers to provide that minimum set of standards. There were originally four members and there are now nine: Allchurches Life, BPT Bridgewater, GE Life, Hodge Equity Release, Home & Capital Trust, Key Retirement Solutions, Northern Rock, Norwich Union and NPI.
Q. What can borrowers expect from the SHIP Code?
The SHIP Code is designed to provide protection to clients, including easy-to-understand literature, independent legal work, the right to stay in the property for life or move in the future and a no-negative equity guarantee.
Q. The equity release market has suffered from a bad image in the past. What has happened to restore confidence in the market and encourage growth?
SHIP has played an important part in building confidence in the market. The product providers involved in SHIP had been offering good products since the 1960s, so it was not that anything had changed, it was just a case of reassuring clients that they were getting the right protection.
It has now been over 10 years since problems with negative equity occurred and the demand for these products is growing. Business is increasing and house prices are up. We currently receive applications from people who paid £5,000 for a home that is currently valued at £300,000 ‘ that sort of growth is no longer unusual. People are living longer and their expectation of life is far different to 20 or 30 years ago. It is no longer about making ends meet, it is about visiting relatives in Australia, or paying for private health treatment.
Q. What type of customer should advisers be targeting to get a foothold in the market?
The first thing that has happened over the past couple of years is that the minimum age for applicants has dropped to 60, whereas it used to be 69 and above. Plans can affect State benefits, so it is important advisers are up to scratch with benefit knowledge. Potential customers are people who are earning enough not to be drawing minimum State benefits but are generally asset rich, income poor. Most IFAs would be able to transact business without further training ‘ the real challenge is finding the clients.
But there is huge potential for advisers to get involved. Solicitors can also be a key to sourcing new business. They may have been involved in the initial house purchase, so when clients start to consider equity release they may be the first people they turn to. If solicitors are not briefed on specialist local advisers, it is a missed opportunity.
Q. Will we see more products on the market this year?
The Council of Mortgage Lenders called last year for the industry to develop more simple equity release products that clients could understand and more readily access. There is more product innovation coming along all the time and there are certainly a lot more providers ‘ who I cannot currently name ‘ who are interested in entering the market. The more competition there is, the more innovation there is. SHIP is all about inclusivity and we want more providers to join us and promote the Code so that its relevance remains in the modern market.
Q. Is there any opportunity to sell other products alongside equity release plans?
I suppose the most natural area is long term care insurance because people are increasingly needing to release funds to pay for care. There are also inheritance tax (IHT) implications because you are creating a debt against the house, meaning IHT liability is reduced. There is therefore potential to use equity release as an IHT planning vehicle. Having said that, the mainstream product is still mostly used for the sole reason of releasing funds.
Q. What is the outlook for the market ‘ will we see continued growth?
Since 1996, we have seen a 12-fold increase in equity release business. The future is very bright, particularly for advice-based plans. The Financial Services Authority has made one of its themes for 2002 ‘retirement years’ and it will be looking at lifetime mortgages, which is another way to describe equity release schemes. That will bring this area into focus for a lot of advisers.
Equity release is becoming more relevant. Five or six years ago, if I had met advisers and asked them if they had done any equity release business, they would have said ‘no’ Now, the chances are they will say, ‘yes and we are looking to get more involved.’ The market is moving away from just dealing with customers who ask about equity release, we are moving into a situation where advisers are now actively looking for clients.