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by: Jon King
  • 15/03/2010
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Jon King explains why the equity release sector still has great potential

The last half of 2009 seemed to be the period when the effects of the credit crunch were most acutely felt in the equity release sector. Or at least that was perhaps the perception from outside the industry.

A number of high-profile exits from the industry prompted headlines predicting further decline and hard times ahead. In reality, however, lenders with long-term objectives in this market and a secure funding model that encapsulates and supports the target demographics for the product have continued to prosper. On the other hand, those who were perhaps not as committed have decided to withdraw, looking to other markets to generate revenue. Certainly, lending decisions when considered by sector are as much about individual profitability as the most efficient use of the institution’s capital.

However, none of the fundamentals that attracted many of the new entrants to the market have gone away. An ageing population with rapidly declining pensions still remains and they will inevitably look increasingly towards property wealth to help them through retirement. In fact, the demand among clients remains strong even if there are less providers from which to choose.

Hodge Lifetime’s Autumn IFA Confidence Report revealed that 60% of IFAs in the equity release market had seen either an increase or stable number of client applications over the latter part of 2009. More than three quarters of IFAs also expressed no concern with regards to the withdrawal of major players from the market and the effect it would have on their confidence in finding equity release business. Consumer research among Hodge Lifetime customers also highlighted the changing perception of equity release among older homeowners. While the product was predominantly taken out for financial security during 2008 and early 2009, late 2009 saw 48% of Hodge Lifetime customers choosing equity release predominantly for the peace of mind it offers.

With 80% of business now coming via IFAs, according to Safe Home Income Plans (SHIP), the direct sales methodology has also been proved inefficient when it comes to this market. The cost of each case generated for a direct sales person has confirmed the long held belief that IFAs represent the best distribution method and with fees already being charged by the majority of brokers in this area, the Retail Distribution Review should in principle present no major headaches to serious players. In fact, when combined with the Mortgage Market Review, there will be room for many different shades of adviser, depending how the service is delivered.

A critical factor in intermediary involvement will be the extent to which groups are formed to bring value to the client. The success of SHIP over the years has been about a simple message, consistently delivered. The same principles need to be applied to IFAs with guarantees over service and standards being at the fore. After all, advice is compulsory ahead of any purchase of a SHIP product – the question is which adviser does the client choose?

The formation of trade bodies such as the Society of Equity Release Advisers (SERA) offers a start in the right direction for promoting the importance of specialist equity release advice going forward. However, as clients begin to do their own research – searching and comparing advisers – the battleground is likely to be the internet with clients increasingly using this medium to decide on the firm they want to employ to help. Quick, efficient and guaranteed advice service offered in a framework of trust will deliver the winning formula.

There may also be a battle over price and in particular broker fees. However, taking equity release remains a big decision for clients and the quality of service will always be high on any list of priorities.

With reduced competition in the market, IFAs can now clearly see which providers have the long-term commitment to servicing clients in this area and can identify those who are adapting their offering to suit changing needs and requirements. I am pleased to say that innovation continues not just in the UK but also abroad, with an equity release product in Germany recently winning a prestigious award for the most innovative product. Many countries around the world regard our equity release business as a world leader, and we should be proud of our achievements to date. However, the story is of course far from over and product innovation and advice must continue to grow to support the prospects for the market.

Jon King is managing director at Hodge Lifetime

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