Annual equity release lending reached £1.61bn in 2015, an increase of 17% compared to the £1.38bn seen in 2014, according to the Equity Release Council. Mainstream mortgage lender interest is rising in the sector as providers switch on to the opportunities offered by lending to older borrowers creating competition in the equity release sector.
This week we have asked our panel of experts how they expect the equity release market to perform in 2016.
Simon Chalk, technical manager – equity release, at Age Partnership, says the expansion of product terms and regulatory changes to be the main events in 2016.
Mark Gregory, director, Equity Release Supermarket, says the industry will be firmly focused on product innovation and reshaping retirement solutions.
Vanessa Owen, head of retirement solutions products at LV, talks about the changes in product design and approaches to retirement advice.
Equity release is irrefutably in the ascendancy, following another record year in new plan numbers and amount released. So what might we expect to see from the market as 2016 hurriedly takes us into the Spring?
Funders are queuing up with insatiable appetite for the fixed, fairly predictable, low-risk return on capital investment that lifetime mortgages offer. There’s no fear of money drying up as far as one can see.
I don’t expect a surge in new providers, but that’s no bad thing as the existing cohort can comfortably serve far greater customer demand. With new lines of funding opening up, pricing and product development will gain prominence; meaning increased competition for the customer’s business and the adviser’s recommendation. This will inevitably lead to even more decent product terms and flexibility for the customer.
An income plan and something specific to meet care costs are long overdue. I’ve been banging on about this for years, but do understand that securing funds and manufacturing a workable, profitable product are difficulties to be cracked. Still, I’m ever hopeful as the need is definitely there to be met and pension freedom accelerates matters.
Lastly regulation; we await the outcome of the FCA’s mortgage market competition review but I expect only a positive outcome for an equity release sector that offers salvation to stranded borrowers and obstinate lenders alike.
For sure, 2016 will be the most successful year ever for the equity release market. However, for me this shouldn’t be just measured in terms of short-term, selfish transactional volumes alone.
There is a much stronger underlying current of activity which is hopefully going to see more than just growth – product innovation, the likes of which this traditionally staid retirement mortgage market has never seen before. We want to see this market to flourish over the long term with flexibility and choice.
Events on the horizon determining this level of success are borne from within the industry itself as we, the brokers and advisers help lenders shape the products of the future. Afterall, we are the consumer-facing side, witnessing retirees needs. We hear Legal and General already have a 22% share of this market. Hopefully they can continue to shake off industry cobwebs, take over the mantle from Hodge and latter day Stonehaven in devising fresh innovative ideas.
This year presents another large tranche of interest-only mortgages reaching retirement and its these people looking towards repayment solutions like lifetime mortgages. For this reason, some relaxation of interest-only rules are necessary, but this needs to be coupled with products that meet their demands. Hence, for me the retirement mortgage market in 2016 is set to offer greater opportunities for homeowners wishing to remain in situ, and it’s down to this market to recognise that equity release isn’t always the only option. Therefore, a whole retirement advice rethink may be on the cards.
Figures from the Equity Release Council show the equity release market has doubled in size since 2011 and, in my opinion, the way is only up for the market in this coming year.
However, retirement is becoming less about a date on which everything stops; more people are working on. As a result of this and the pensions freedoms we need to think differently about retirement income products including products like equity release.
We’re beginning to see a shift in the market with the lines between the equity release market and the traditional mortgage market becoming more blurred with products that transition from monthly interest payments to interest rolling up later in life. We predict this will continue with more products being designed to meet the needs of different types of people within the retirement market. This will put more pressure on providers to offer more transparent and consumer-friendly product terms.
Equity release has often been seen as a viable solution to the issue of a shortfall in pension savings. As the market responds to the changing needs of people at the point of retirement, we’re likely to see financial advisers move towards offering more holistic advice rather than on specific products.