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Equity Release Schemes - UK - May 2010

  • There has been an increase in the proportion of people using equity release to repay consumer credit. This hints at a huge shift in mentality among older homeowners, and could have implications that go well beyond the equity release market.
  • Some potential customers have been put off taking out an equity release scheme because of a fear that it will interfere with benefits, particularly when it comes to the Pension Credit. Changing legislation should mean that this is much less of an issue going forwards.
  • By 2016, the CML predicts that over-60s will have over £1.2 trillion locked away in residential property, meaning that this market has massive potential.
  • The UK's demographics also strongly favour this market. The UK has an aging population with huge amounts of property wealth, but relatively little in the way of private pension provision..
  • Baby Boomers are more comfortable than their parents were when it comes to using debt as a financial tool. Those approaching retirement no longer live by the maxim 'never a borrower nor a lender be', meaning that they should be more open to the idea of supporting their lifestyle by releasing equity from their home.
  • Although the market has been hard-hit by the financial crisis, Mintel forecasts a steady recovery from 2011 as liquidity returns to the mortgage sector.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Scope of the report
          • Target market
            • Market definitions
              • Lifetime mortgage
                • Home reversion plan
                  • Home income plan
                    • Tax implications
                      • Safe Home Income Plans (SHIP)
                        • Abbreviations
                        • Future Opportunities

                          • Changing the consumer mindset
                            • Addressing new and diverging customer needs
                              • The product needs to evolve in response to changing social and economic dynamics
                              • Market in Brief

                                • The size of the target market
                                  • Recent sales performance
                                    • Short-term outlook
                                      • Good long-term prospects
                                        • Market movements
                                          • Competitive environment
                                            • Distribution trends
                                              • Adspend cutback
                                                • Current financial situation of the over-55s
                                                  • Retirement plans of the under-65s
                                                    • Expected retirement income sources
                                                      • Attitudes towards equity release
                                                      • Internal Market Environment

                                                        • Key points
                                                          • Funding difficulties and downturn force some companies to withdraw
                                                            • Market needs fresh investment
                                                              • Average property prices continue on their long-term upward trend
                                                                • Figure 1: UK average house prices – former owner-occupiers (not seasonally adjusted), Q1 2000-Q4 2009
                                                              • Changes to IHT rules have reduced need for ERS as a tax-planning tool
                                                                • Equity release could help fund social care
                                                                  • Figure 2: Average annual long-term care costs, by region, 2008
                                                                • Social Care White Paper
                                                                  • The long-term care bill will nearly double in two decades
                                                                    • Figure 3: Population projections and effects on demand for long-term care – England, 1996-2031
                                                                  • Recent legislative changes benefit ERS
                                                                  • Broader Market Environment

                                                                    • Key points
                                                                      • Main market drivers
                                                                        • Figure 4: Summary of the main factors driving demand for equity release schemes, 2010
                                                                      • Ageing population expands target market
                                                                        • Figure 5: UK population, by age, 2008-27 (2008-based projection)
                                                                      • Increasing longevity means retirement savings must stretch for longer
                                                                        • Figure 6: Expectation of life at age 55, by gender – UK, 1981-2058
                                                                      • Household income peaks around age 50
                                                                        • Figure 7: Annual GB household income before tax, by age, 2009
                                                                      • Just over two fifths of pensioner income is derived from state benefits
                                                                        • Figure 8: Average pensioner income, by source, at current prices, 2007/08
                                                                      • More than two thirds of the over-65s own their home outright
                                                                        • Figure 9: Tenure, by age of household reference person – England, 2008
                                                                      • An expanding target market
                                                                        • Figure 10: Projected number of owner-occupier households owned by the over-60s – UK, by age and type of household, 2006-26
                                                                      • Over-60s’ housing wealth valued at nearly £1 trillion
                                                                        • Figure 11: Projected number and value of owner-occupier properties owned by the over-60s, by type, 2006-26
                                                                    • Competitive Context

                                                                      • Key points
                                                                        • ERS has a place in mainstream retirement planning
                                                                          • Figure 12: Ownership of private pensions and savings and investment products, by age, December 2009
                                                                        • ERS offers a potential alternative to downsizing
                                                                          • ERS is a very different proposition from sale-and-rent-back
                                                                          • Market SWOT Analysis

                                                                              • Figure 13: Equity release scheme market – SWOT analysis, 2010
                                                                          • Who’s Innovating?

                                                                            • Key points
                                                                              • Recent developments
                                                                                • Achievements over the past two decades
                                                                                  • The market will continue to evolve to meet changing customer needs
                                                                                  • Trade Perspective

                                                                                      • Change in public perception needed
                                                                                        • Government needs to clarify its position
                                                                                          • Funding remains a significant problem for some
                                                                                            • Limited product development recently
                                                                                              • A multitude of customer types with varying needs
                                                                                                • The market is expected to remain flat in 2010…
                                                                                                  • …but the long-term prognosis is positive
                                                                                                  • Market Size and Forecast

                                                                                                    • Key points
                                                                                                      • A small market with great potential
                                                                                                        • The market contracted further in 2009, due to the effects of the credit crunch
                                                                                                          • Figure 14: Volume and value of new equity release plan sales, 2004-09
                                                                                                        • Slow recovery forecast
                                                                                                          • Figure 15: Forecast of new equity release plan sales, 2005-15
                                                                                                        • Factors incorporated
                                                                                                        • Market Segmentation

                                                                                                          • Key points
                                                                                                            • Home reversion plans fell by 57% in 2009
                                                                                                              • Figure 16: Volume of new lifetime mortgage and home reversion plan sales, 2006-09
                                                                                                            • Lifetime mortgages accounted for 98% of ERS sales in 2009
                                                                                                              • Figure 17: Volume of new equity release plan sales, by type, 2004-09
                                                                                                              • Figure 18: Value of new equity release plan sales, by type, 2004-09
                                                                                                              • Figure 19: Average value of lifetime mortgage versus home reversion plan, 2004-09
                                                                                                          • Regional and Usage Trends

                                                                                                            • Key points
                                                                                                              • Demand for equity release varies from region to region
                                                                                                                • Figure 20: Volume and value of equity release schemes, average LTV and average customer age, by region, 2009
                                                                                                              • ERS customers are typically aged 60-79
                                                                                                                • Figure 21: Distribution of equity release schemes, by age of customer, 2009
                                                                                                              • Growth in people taking out equity release to repay unsecured debt in 2009
                                                                                                                • Figure 22: Popular uses of equity release, 2008 and 2009
                                                                                                              • No longer a ‘single’ market, with new customer types emerging
                                                                                                                • Figure 23: Typical customer types with equity release needs, July 2009
                                                                                                            • Market Share

                                                                                                              • Key points
                                                                                                                • Aviva cements its market leader position in 2009
                                                                                                                  • Figure 24: Top five equity release providers, by new sales value, 2008 and 2009
                                                                                                              • Companies and Products

                                                                                                                  • Aviva
                                                                                                                    • Bridgewater Equity Release
                                                                                                                      • Hodge Lifetime
                                                                                                                        • Home & Capital
                                                                                                                          • Just Retirement
                                                                                                                            • LV=
                                                                                                                              • New Life Mortgages
                                                                                                                              • Brand Communication and Promotion

                                                                                                                                • Key points
                                                                                                                                  • Adspend on equity release fell by more than a quarter in 2009
                                                                                                                                    • Figure 25: Total advertising expenditure on equity releases schemes, 2005-09
                                                                                                                                  • Aviva became the top ERS advertiser in 2009
                                                                                                                                    • Figure 26: Top 15 advertisers of equity releases schemes, 2007-09
                                                                                                                                  • Direct mail accounted for over 60% of adspend in 2009
                                                                                                                                    • Figure 27: Equity releases schemes adspend, by media type, 2007-09
                                                                                                                                • Channels to Market

                                                                                                                                  • Key points
                                                                                                                                    • Intermediaries play a major role in the market
                                                                                                                                      • Figure 28: Share of equity release sales (volume), by distribution channel, 2005-09
                                                                                                                                    • Overcoming obstacles to increase adviser support
                                                                                                                                      • Potential implications of the RDR
                                                                                                                                      • The Over-55s – Financial Situation and Prospects

                                                                                                                                        • Key points
                                                                                                                                          • One in 12 over-55s are struggling or in financial difficulty
                                                                                                                                            • Figure 29: Personal financial situation – all adults versus over-55s, March 2010
                                                                                                                                          • The over-55s are most likely to spend their spare cash on dining out
                                                                                                                                            • Figure 30: Typical uses of discretionary spending – over-55s, March 2010
                                                                                                                                          • Recession has had a major impact on one in five over-55s
                                                                                                                                            • Figure 31: Impact of the economic downturn – all adults versus over-55s, March 2010
                                                                                                                                          • In particular, savings have suffered
                                                                                                                                            • Figure 32: Effects of the economic downturn on personal finances/wealth – all adults versus over-55s, March 2010
                                                                                                                                          • One in seven over-55s are really worried about their financial future
                                                                                                                                            • Figure 33: Consumer sentiment in regards to own future financial situation – all adults versus over-55s, March 2010
                                                                                                                                        • The Under-65s – Retirement Plans and Aspirations

                                                                                                                                          • Key points
                                                                                                                                            • Those nearing pension age have more realistic aspirations
                                                                                                                                              • Figure 34: Age expected to retire, by age, June 2009
                                                                                                                                            • Retirement expectations change with age
                                                                                                                                              • Figure 35: Financial expectations at retirement, by age, June 2009
                                                                                                                                            • Less than half of all non-retired adults have a pension
                                                                                                                                              • Figure 36: Retirement products owned, by age, June 2009
                                                                                                                                            • 45% of those aged 55-64 believe they won’t be able to get by on the state pension alone
                                                                                                                                              • Figure 37: Attitudes towards retirement and retirement planning, by age, June 2009
                                                                                                                                          • The Consumer – Sources of Retirement Income

                                                                                                                                            • Key points
                                                                                                                                              • About Mintel’s consumer survey
                                                                                                                                                • Most people are relying on a state pension to help fund their retirement
                                                                                                                                                    • Figure 38: Expected or actual sources of income post-retirement, February 2010
                                                                                                                                                  • Around one in eight mortgage holders expect to downsize
                                                                                                                                                    • Figure 39: Expected or actual sources of income post-retirement, by tenure, February 2010
                                                                                                                                                  • Retirement income plans change with age
                                                                                                                                                    • Figure 40: Expected or actual sources of income post-retirement, by age, February 2010
                                                                                                                                                    • Figure 41: Number of expected or actual sources of income post-retirement, by age, February 2010
                                                                                                                                                  • Men aged 65+ are a key target group
                                                                                                                                                    • Figure 42: Expected or actual sources of income post-retirement, by combined gender and age – over-45s only, February 2010
                                                                                                                                                • The Consumer – Ownership and Consideration of ERS

                                                                                                                                                  • Key points
                                                                                                                                                    • 1% of outright homeowners have equity release
                                                                                                                                                        • Figure 43: Consideration of equity release scheme to help fund retirement, by tenure, February 2010
                                                                                                                                                      • Younger adults are more open to considering equity release
                                                                                                                                                        • Figure 44: Consideration of equity release scheme to help fund retirement, by age, February 2010
                                                                                                                                                      • Men over state pension age are most likely to have ERS
                                                                                                                                                        • Figure 45: Consideration of equity release scheme to help fund retirement, by combined gender and age – over-45s only, February 2010
                                                                                                                                                    • The Consumer – Attitudes Towards ERS

                                                                                                                                                      • Key points
                                                                                                                                                        • Less than a third of homeowners want their family to inherit their home
                                                                                                                                                            • Figure 46: Attitudes towards equity release scehmes, by tenure, February 2010
                                                                                                                                                          • The under-35s are more open to the idea of equity release
                                                                                                                                                            • Figure 47: Attitudes towards equity release scehmes, by age, February 2010
                                                                                                                                                          • Men are generally more pragmatic when it comes to their home and more pro equity release
                                                                                                                                                            • Figure 48: Attitudes towards equity release scehmes, by combined gender and age, February 2010
                                                                                                                                                          • Further analysis
                                                                                                                                                          • Appendix 1 – Profile of the Target Market

                                                                                                                                                              • Figure 49: Demographic profile of the target market, February 2009
                                                                                                                                                          • Appendix 2 – Sources of Income by Demographics

                                                                                                                                                              • Figure 50: Expected or actual sources of retirement income, by demographics, February 2010
                                                                                                                                                          • Appendix 3 – Consideration of ERS by Demographics

                                                                                                                                                              • Figure 51: Consideration of equity release schemes, by demographics, February 2010
                                                                                                                                                          • Appendix 4 – Profile of ERS Customers and Prospects

                                                                                                                                                              • Figure 52: Demographic profile of existing ERS customers and potential prospects, February 2010

                                                                                                                                                          Companies Covered

                                                                                                                                                          • Asda Group Ltd
                                                                                                                                                          • Aviva Plc
                                                                                                                                                          • Bradford & Bingley plc
                                                                                                                                                          • Cavendish Equity Release
                                                                                                                                                          • CGU
                                                                                                                                                          • Co-operative Group
                                                                                                                                                          • Council of Mortgage Lenders
                                                                                                                                                          • Department for Work and Pensions
                                                                                                                                                          • Department of Health
                                                                                                                                                          • Financial Services Authority (The)
                                                                                                                                                          • Freeview
                                                                                                                                                          • Government Actuary's Department (GAD)
                                                                                                                                                          • Grainger plc
                                                                                                                                                          • Hodge Equity Release
                                                                                                                                                          • Home & Capital Trust
                                                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                                                          • J. Sainsbury
                                                                                                                                                          • Joseph Rowntree Foundation
                                                                                                                                                          • Julian Hodge Bank Ltd
                                                                                                                                                          • Just Retirement Ltd
                                                                                                                                                          • Laing & Buisson
                                                                                                                                                          • LV=
                                                                                                                                                          • Market & Opinion Research International (MORI)
                                                                                                                                                          • Marks & Spencer
                                                                                                                                                          • MBNA Europe
                                                                                                                                                          • National Counties Building Society
                                                                                                                                                          • Newcastle Building Society Limited
                                                                                                                                                          • Northern Rock plc
                                                                                                                                                          • Norwich Union
                                                                                                                                                          • Office of Fair Trading
                                                                                                                                                          • Pearl Assurance plc
                                                                                                                                                          • Permira Advisers Ltd
                                                                                                                                                          • Prudential plc
                                                                                                                                                          • Reader's Digest Association, Inc. (The)
                                                                                                                                                          • Retirement Plus
                                                                                                                                                          • Rugby Football Union
                                                                                                                                                          • Saffron Walden Herts & Essex Building Society
                                                                                                                                                          • Saga Services (finance)
                                                                                                                                                          • Somerfield
                                                                                                                                                          • Stonehaven
                                                                                                                                                          • Tesco Plc
                                                                                                                                                          • Waitrose
                                                                                                                                                          • Welsh Rugby Union Ltd
                                                                                                                                                          • Wm Morrison Supermarkets

                                                                                                                                                          Equity Release Schemes - UK - May 2010

                                                                                                                                                          £1,995.00 (Excl.Tax)