Feature: Booming equity release


Image by Shutterstock / Ufuk ZIVANA

Equity release professionals appear to be teeming with positivity amid record loan numbers and product selection, as well as low rates.

Although many concede that the historically negative reputation of the industry still influences consumers, when Mortgage strategy polled the industry, the mood was surprisingly optimistic about the business outlook.

More2life’s Director of Corporate Marketing, Stuart Wilson, sums up the opinion: “We are operating in an exciting new era and are delighted to help a growing number of homeowners access their home equity funds to meet their needs. to their financial needs later in life. “

Equity Release Council (ERC) Chairman David Burrowes said: “The inevitable downturn in the pandemic has been followed by a gradual return of confidence, aided by the strong performance of the broader real estate market.

The release of shares is arguably one of the most regulated retail products

“Homeowners who need additional cash at the end of their life increasingly see the release of equity as a positive step, under the right circumstances, to benefit from the wealth they have accumulated over many decades. . “

This sentiment is reflected by many data sources.

ERC figures show that 2021 is likely to be a banner year for lending. By the end of September, stock release clients had borrowed £ 3.46bn this year, setting the market on track for well over £ 4bn in annual business – a new milestone.

More2Life predicts that over the next decade the amount of equity released per year could reach £ 6.4 billion.

Innovation

Just Group Director Stephen Lowe points out that innovation is one of the drivers of recent market growth.

He says: “The market is rebounding from the lockdowns of last year and is returning to growth. Developments such as the wider introduction of medical underwriting – which could help six in 10 lifetime mortgage borrowers do better deals – exemplify the prevailing innovation and competition, which are signs of a healthy market. “

The market is recovering from last year’s bottlenecks and returns to growth

In addition to increased innovation, such as more flexible draw options, the overall product choice has been increasing for many years. Figures from data firm Moneyfacts show huge growth in 2021, with the number of lifetime share release agreements available in early October reaching a record high of 812, from 698 in August and 480 in January. Going back even further, 300 such offers were available in August 2019 and only 88 in August 2016.

Regarding the broader mortgage market, interest rates have fallen in recent years. Data from Moneyfacts shows that the average rate in August 2016 was 5.76%, falling to 4.92% in August 2019. It reached 4.13% in August of last year and, as rates rose. Having rebounded slightly since then, the average was 4.17% at the start of October 2021.

However, like the mainstream market, there are warnings that rates could rise amid the huge increase in the cost of living, which has led to predictions of an impending base rate hike. the Bank of England.

Advisors and clients should not stay on the fence if the need for the product is there

Wilson says, “It’s hard to predict what action the central bank will take at its next meeting to reassess the base rate, but inflationary pressures, rising energy prices, and supply chain issues make it a problem. slight increase more and more likely.

“This has already started to have an impact on the stock release as well as the residential markets.”

Key Managing Director Will Hale is warning advisers not to waste time if the stock release is seen as the right product for a client, amid the threat of a rate hike.

Inflationary pressures, rising energy prices and supply chain issues make a small increase increasingly likely

He says, “In recent weeks, rates have gone up. Advisors and clients should not stay on the fence if the need for the product is there. The rates available today indicate a strong value proposition for the customer, and the cost of delaying the life of a loan can be significant if rates go up.

Although the costs of freeing up equity are historically low, they remain well above standard mortgage rates. Their subsequent spending and how interest can accumulate over many years are two of the reasons some consumers are reluctant to enter into such a deal for fear of leaving less legacy for future generations than they did. hoped for.

That said, the market is still a long way from the horror stories of the ’90s, which saw costs and misery skyrocket for many customers.

The industry has evolved and is very much at the forefront

Hale says, “Unfortunately, the market hasn’t completely shed its negative reputation and it’s frustrating. Equity release is arguably one of the most regulated retail products and can only be purchased with the help of a specially trained advisor.

He continues, “Modern equity release products offer low rates and a range of flexible features, which means the product is relevant to a wide range of clients and is far from the ‘product of last resort’. to which it was previously tagged.

“However, this is definitely not right for everyone and all advisors should help clients consider other options, including interest-only retirement products, downsizing, and the role that their retirement capital or other economies could play to meet their wants or needs. “

Wilson agrees on the reputation of the market. He says, “Unfortunately, there are still doubts about the industry, based on historical cases, a lack of understanding and media headlines.

The product is relevant to a wide range of customers and is far from the ‘product of last resort’ it was previously labeled

“The industry has evolved dramatically and is very attentive to ensuring borrowers are fully informed of the details of the loans they wish to take out and supporting advisors when they have conversations with their clients.

“The industry continues to engage with the regulator to ensure that we can move past any historical challenges and focus on delivering lasting individual results for customers.

“The trend is changing, but more education is needed before the average consumer realizes the myriad benefits of freeing up equity, from financing home renovations to donating money in a way. fiscally advantageous. “

There is an ongoing need to ensure that consumers and brokers, in a variety of fields, understand the choices available to them.

Others in the industry agree that many consumers, and even brokers, need more information on how equity release works.

The ERC says it spends time helping to improve understanding of the product.

Its Managing Director, Jim Boyd, says, “The industry is constantly changing and there is a constant need to ensure that consumers and brokers, in a variety of fields, understand the choices available to them.

“The board invests a lot of time and resources in consumer and advisor training, such as its competency framework, advisor guide and best practice tips. “

Comprehension

The consensus seems to be that, if more advisers can better understand this market, they could find themselves in a booming industry, and their peers are full of optimism.

A study by More2life in August showed that 94% of advisers were confident about the outlook for the market to release shares in the next year, while 91% were also confident about the outlook for their company.

The trend is changing, but more education is needed before the average consumer is aware of the myriad benefits of freeing up equity.

A cynic may argue that the industry is compelled to talk about its potential because it helps it make more money, and the industry is less likely to highlight some of its challenges that have been raised over the years by the Which? consumer group and others of the same ilk.

When it comes to growth, however, the statistics speak for themselves, with 2021 likely being a banner year for lending. It remains to be seen how much bigger the market can get and how well it meets customer needs.

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