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The moments that defined equity release

by: Andrea Rozario
  • 12/12/2011
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The moments that defined equity release
With SHIP celebrating its 20th anniversary this week, director general Andrea Rozario looks back at the moments that have defined the equity release industry, from the shared equity mortgage scandal of the '80s to the relaunch of the trade body in 2012.

The odds were stacked against the equity release lenders that set up Safe Home Income Plans (SHIP) in 1991, but as it marks its 20-year anniversary this autumn, you can clearly see they prevailed.

Since 1991, SHIP members have helped 269,787 customers, provided £10.5bn in mortgage advances and £1.6bn in reversion sales.

Despite the economic difficulties of the past three years, the sector has held up well and SHIP’s Q3 2011 figures revealed an increase in value and volume of lending.

For intermediaries, it offers huge potential as their share of the market is now 88%, up from a low of 51% in 2003 and the typical average of 60% over the past 20 years.

However, all of this could very easily not have occurred and the strength of the sector today dates back to events in 1991.

A disastrous decade

The industry had evolved without issue since 1965, when the first reversion scheme was launched by Home Reversions (later Hodge Equity Release), but disaster struck in the late 1980s.

New entrants to the market launched home income plans that invested the money taken out, which were hit by the stock market crash and by rising interest rates, leaving many customers in negative equity or even losing their homes.

Other new entrants launched shared appreciation mortgages, which also caused financial hardship following the high house price inflation of the mid 1990s.

Home income plans were banned by the regulator in 1991, but the scandal tainted the sector’s image.

SHIP sets sail

An exceptional response was required by the industry to ensure the sector’s continued survival and SHIP was launched as a new industry body to promote safe equity release schemes.

The key providers – Allchurches Life, Hodge Equity Release, Home & Capital Trust and GE Life – joined forces to define critical features of safe plans that included a no-negative equity guarantee and a robust code of conduct for the sales and advice process.

Between 1991 and 2006 the number of providers joining SHIP rose to 21:

1998: Bridgewater
1999: Norwich Union (now Aviva), introducing the first ‘roll-up’ mortgage
2000: Northern Rock
2001: Key Retirement Solutions and Stroud & Swindon
2003: Portman, Mortgage Express, National Counties Building Society and Prudential
2004: New Life Mortgages, Standard Life Lifetime Mortgages and In Retirement Services (Reversions)
2005: Just Retirement Ltd and Bristol and West Mortgages
2006: Partnership Home Loans, Retirement Plus and Stonehaven Equity Release.

In 2006, SHIP appointed Laurie Edmans as its first non-executive chairman to lead a strategic review that eventually resulted in the appointment in late 2007 of a myself as a full-time director general.

I was tasked with developing a strategy for SHIP and communications activity with the range of stakeholders in the equity release industry. Such has been the strength of the guarantees and code that SHIP was founded on, it has consistently represented more than 90% of the equity release sector’s providers.

This unity has underpinned the success of the sector – giving a clear message on safety and product usage to all stakeholders as well as tackling issues that have required the industry’s response.

Lobbying power

Not least of these was clear lobbying in 2004 in response to the government decision to formally regulate lifetime mortgages, but not home reversion schemes.

SHIP called for full regulation, but in the meantime launched its own stringent home reversions code and established a powerful complaints board to protect consumers.

SHIP’s lobbying was successful and the government announced that home reversion schemes would be regulated from April 2008.

In 2006, sale and rent back (SARB) schemes came to the fore and their marketing was such that they could easily be confused with other regulated equity release schemes.

SHIP campaigned for regulation of these schemes and – in 2008 – the Office of Fair Trading announced that SARB schemes should be regulated by the FSA from June 2009.

Rise of professionalism

Notwithstanding the robustness of its guarantee and code, SHIP has remained vigilant in addressing any issues that could compromise its strong stance on providing the highest quality consumer protection.

In 2007, it announced it would no longer accept business from advisers without a suitable qualification in equity release. Then in 2008, it said SHIP members would no longer accept business from advisers who did not hold a home reversions qualification.

It also announced changes to the SHIP certificate whereby solicitors must sign a clause asserting their independence from the lender and the financial adviser.

Pension problems

SHIP has also spearheaded discussions with government into the broader issues of retirement funding and how equity release can play a part in that.

In 2009, it launched a comprehensive discussion paper at an industry conference “Facing the Future, Redefining Equity Release to meet today’s social and economic challenges.”

At this event, Baroness Patricia Hollis led calls for a formal government review into the use of equity release for retirement funding.

In 2010, SHIP launched a campaign for clarification of how equity release impacts on state benefits – supported by Personal Finance Society (PFS), the Association of Independent Financial Advisers (AIFA) and the Association of Mortgage Intermediaries (AMI) amongst others.

In 2011, SHIP began a review into the cross-industry appetite for a broad representative body embracing all the major players in the equity release market.

Twenty years from SHIP’s launch, on the future looks bright for the equity release sector and, importantly, the consumers who need and benefit from its products.

The collaboration of those in the industry in 1991 was a remarkable success and is a hallmark of how the industry still works together today.

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