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Equity Release Schemes - UK - May 2012

“On first glance the recent downward trend in equity release sales suggests a market in decline rather than one with significant potential for growth. However, on closer inspection there are some positive signs which suggest that the recent challenges should not be overstated.”

– Deborah Osguthorpe, Senior Financial Services Analyst

Some questions answered in this report include:

  • Can the market recover from the recent decline in sales?
  • To what extent are people confident about their finances in retirement?
  • Are attitudes towards equity release products changing?
  • To what extent is protecting inheritance a barrier to equity release?
  • What appetite is there for downsizing in retirement?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Equity release sales expected to turn the corner in 2012
              • Figure 1: Forecast of new equity release sales, by volume, 2006-16
            • Drawdown plans account for a growing share, but home reversion sales have fallen
              • Figure 2: Volume of new equity release sales, by product type, 2007-11
            • Market factors
              • Demographic trends should result in significant market growth
                • Improving perceptions
                  • Market awaits a government decision on long-term care proposals
                    • Companies, brands and innovation
                      • Top three providers dominate the market, but competition is increasing
                        • Figure 3: Equity release provider share, by new sales value, 2011
                      • Interest-only and enhanced equity release products are main areas for innovation
                        • Equity release adspend continues to decline
                          • The consumer
                            • State pension dominates retirement planning expectations
                              • Figure 4: Expected and actual sources of retirement income, March 2012
                            • Consumers are fairly confident about their retirement finances
                              • Figure 5: Expectations of retirement finances, March 2012
                            • Consumers still need still to be convinced about the merits of equity release schemes
                              • Figure 6: Attitudes towards equity release schemes, March 2012
                            • Inheritance issues still present a major barrier to equity release
                              • Figure 7: Attitudes towards inheritance and property in retirement, March 2012
                            • What we think
                            • Issues in the Market

                                • Can the market recover from the recent decline in sales?
                                  • To what extent are people confident about their finances in retirement?
                                    • Are attitudes towards equity release products changing?
                                      • To what extent is protecting inheritance a barrier to equity release?
                                        • What appetite is there for downsizing in retirement?
                                        • Future Opportunities

                                          • Equity release could unlock a more fulfilling retirement
                                            • Encouraging a more selfish approach to retirement
                                            • Market Environment

                                              • Key points
                                                • Equity release expansion is widely expected due to demographic trends
                                                  • Figure 8: UK population, by age, 2010-35 (2010-based projection)
                                                • Longer life expectancy places pressure on retirement savings
                                                  • Figure 9: Expectation of life at age 55, by gender – UK, 1981-2060
                                                • More retirees are taking debt into retirement
                                                  • Equity release market still has to win over some consumers and advisers
                                                    • SHIP extends membership to include financial advisers
                                                      • Retirees have property wealth of around £750 billion
                                                        • Figure 10: Tenure, by age of household reference person – England, 2010-11
                                                      • House price volatility undermines appetite for equity release schemes
                                                        • Figure 11: UK average house prices – former owner-occupiers (not seasonally adjusted), Q1 2000-Q3 2011
                                                      • Over-65s are less optimistic about future house price growth
                                                        • Figure 12: Consumer expectations of house prices, by age, December 2011
                                                      • Competitive rates return to the equity release market
                                                        • A last resort or a useful retirement planning tool?
                                                          • Dilnot Commission proposes to cap long-term care costs
                                                            • Decision over long-term care costs is crucial to equity release market
                                                              • MMR proposals to ensure all equity release sales are advised
                                                                • RDR could boost equity release sector
                                                                • Competitive Context

                                                                  • Key points
                                                                    • Significant gap in private pension participation
                                                                      • Figure 13: Pension and investment product ownership, by age, June 2011
                                                                    • Downsizing offers a different way to release equity…
                                                                      • …but is not suitable for all
                                                                        • Sale-and-rent-back market is closed by FSA
                                                                        • SWOT Analysis

                                                                            • Figure 14: Equity release schemes, SWOT analysis, 2012
                                                                        • Who’s Innovating?

                                                                          • Key points
                                                                            • New sector emerges with development of interest-only products
                                                                              • Stonehaven and AToM offer interest-only deals
                                                                                • Hodge Lifetime offers lifetime mortgage with overpayment facility
                                                                                  • Greater focus on enhanced equity release products
                                                                                    • Established providers adopt more flexible features
                                                                                    • Market Size and Forecast

                                                                                      • Key points
                                                                                        • SHIP figures show a further decline in equity release sales in 2011
                                                                                          • Figure 15: Volume and value of new equity release plan sales, 2005-11
                                                                                        • Drawdown products place downward pressure on sales value figures
                                                                                          • Key Retirement Solutions data reflect wider market developments
                                                                                            • Figure 16: Volume and value of new equity release plan sales, SHIP and Key Retirement Solutions, 2009-11
                                                                                          • Market Forecast
                                                                                            • Figure 17: Forecast of new equity release sales, by volume, 2006-16
                                                                                            • Figure 18: Forecast of new equity release sales, by volume, 2006-16
                                                                                            • Figure 19: Forecast of new equity release sales, by value, 2006-16
                                                                                            • Figure 20: Forecast of new equity release sales, by value, 2006-16
                                                                                          • Forecast methodology
                                                                                            • Fan chart explanation
                                                                                            • Market Segmentation

                                                                                              • Key points
                                                                                                • Drawdown products account for 61% of sales
                                                                                                  • Figure 21: Value of new equity release sales, by product type, 2011
                                                                                                • Home reversion sales continue to decline
                                                                                                  • Figure 22: Volume of new equity release sales, by product type, 2007-11
                                                                                                • Home reversion schemes lack adviser support
                                                                                                  • Figure 23: Volume of new equity release plan sales, by type, 2007-11
                                                                                                • Home reversions account for 2% of market in value terms
                                                                                                  • Figure 24: Value of new equity release plan sales, by type, 2007-11
                                                                                              • Regional and Usage Trends

                                                                                                • Key points
                                                                                                  • Wales and East Anglia record highest levels of growth in 2011
                                                                                                    • Figure 25: Volume and value of equity release schemes, average LTV and average customer age, by region, 2011
                                                                                                  • Under-75s are more likely to use equity release schemes
                                                                                                    • Figure 26: Distribution of equity release schemes, by age, 2011
                                                                                                  • Home improvements remain the main reason to release equity
                                                                                                    • Figure 27: Popular uses of equity release, 2009-11
                                                                                                  • A growing number release equity to help family and friends
                                                                                                  • Market Share

                                                                                                    • Key points
                                                                                                      • Top three providers account for 84% of sales value…
                                                                                                        • Figure 28: Top three equity release providers, by new sales value, 2009-11
                                                                                                      • …but competition from other providers is increasing
                                                                                                      • Companies and Products

                                                                                                        • Aviva
                                                                                                          • Just Retirement
                                                                                                            • LV=
                                                                                                              • Key Retirement Solutions
                                                                                                              • Brand Communication and Promotion

                                                                                                                • Key points
                                                                                                                  • Equity release adspend continues to decline
                                                                                                                    • Figure 29: Total advertising expenditure on equity releases schemes, 2007/08-2011/12
                                                                                                                  • Aviva dominates equity release adspend
                                                                                                                    • Figure 30: Top 15 advertisers of equity releases schemes, 2009/10-2011/12
                                                                                                                  • Direct mail used to target equity release advertising
                                                                                                                    • Figure 31: Adspend on equity releases schemes, by media type, 2009/10-2011/12
                                                                                                                • Channels to Market

                                                                                                                  • Key points
                                                                                                                    • Intermediary share rises to almost 90% of sales volume
                                                                                                                      • Figure 32: Share of equity release sales (volume), by distribution channel, 2006-11
                                                                                                                    • Vast majority of equity release sales are made on an advised basis
                                                                                                                      • MMR will make advised sales compulsory
                                                                                                                        • Advisers discouraged by negative connotations
                                                                                                                          • Efforts to boost adviser participation
                                                                                                                            • SHIP extends membership to advisers
                                                                                                                            • The Retired Population – Financial Situation and Prospects

                                                                                                                              • Key points
                                                                                                                                • Retirees are in a much better financial position than most...
                                                                                                                                  • Figure 33: Current financial situation – all adults and retirees, March 2012
                                                                                                                                • ...but the last 12 months have been challenging
                                                                                                                                  • Figure 34: Financial situation compared to a year ago – all adults and retirees, March 2012
                                                                                                                                • A third of retirees are pretty confident about the future
                                                                                                                                  • Figure 35: Consumer sentiment for the coming year – all adults and over-55s, March 2012
                                                                                                                                • Retirees are more likely to spend extra cash on holidays
                                                                                                                                  • Figure 36: What any extra money is spent on – all adults and retirees, March 2012
                                                                                                                              • Sources of Retirement Income

                                                                                                                                • Key points
                                                                                                                                  • Most people expect to rely on pensions to fund retirement
                                                                                                                                    • Figure 37: Expected and actual sources of retirement income – all adults, over-45s and retirees, March 2012
                                                                                                                                  • Very little appetite for using property to fund retirement
                                                                                                                                    • Equity release still not seen as a mainstream retirement planning tool
                                                                                                                                      • Figure 38: Expected or actual sources of retirement income, 2010-12
                                                                                                                                    • A fifth expect to rely on one source of retirement income
                                                                                                                                      • Figure 39: Repertoire of expected sources of retirement income, March 2012
                                                                                                                                    • Only most active retirement planners expect to use property to provide income
                                                                                                                                      • Figure 40: Expected sources of retirement income, by repertoire of expected sources of retirement income, March 2012
                                                                                                                                  • Confidence About Retirement Finances

                                                                                                                                    • Key points
                                                                                                                                      • Over-45s are fairly confident about their retirement finances…
                                                                                                                                        • Figure 41: Expectations of retirement finances, March 2012
                                                                                                                                      • …although more than a third do have some concerns
                                                                                                                                        • Confidence about retirement finances increases with age
                                                                                                                                          • Figure 42: Expectations of retirement finances, by age, March 2012
                                                                                                                                        • Retirement finance expectations are affected by mortgage debt
                                                                                                                                          • Figure 43: Expectations of retirement finances, by socio-economic group and housing tenure, March 2012
                                                                                                                                        • Mortgage debt in retirement is a growing problem
                                                                                                                                          • Confidence increases with higher product ownership
                                                                                                                                            • Figure 44: Expectations of retirement finances, by repertoire of expected sources of retirement income, March 2012
                                                                                                                                        • Attitudes Towards Equity Release Schemes

                                                                                                                                          • Key points
                                                                                                                                            • The majority of over-45s still need to be convinced about equity release…
                                                                                                                                              • Figure 45: Attitudes towards equity release schemes, March 2012
                                                                                                                                            • …but there are some positive signs
                                                                                                                                              • Repositioning equity release products could increase appeal
                                                                                                                                                • Figure 46: Attitudes towards equity release schemes, by expectations of retirement finances, March 2012
                                                                                                                                              • Over-65s are the least likely to consider equity release schemes
                                                                                                                                                • Figure 47: Attitudes towards equity release schemes, by age, March 2012
                                                                                                                                              • Mortgage holders are more likely to consider equity release schemes
                                                                                                                                                • Figure 48: Attitudes towards equity release schemes, by socio-economic group and housing tenure, March 2012
                                                                                                                                              • More engaged retirement planners only see equity release as a last resort
                                                                                                                                                • Figure 49: Attitudes towards equity release schemes, by repertoire of expected sources of retirement income, March 2012
                                                                                                                                            • Attitudes Towards Inheritance and Property in Retirement

                                                                                                                                              • Key points
                                                                                                                                                • Attitudes towards inheritance undermine appetite for equity release
                                                                                                                                                  • Figure 50: Attitudes towards inheritance and property in retirement, March 2012
                                                                                                                                                • Almost a third hope to remain in their home for life
                                                                                                                                                  • Even the least prepared for retirement want family to inherit their property
                                                                                                                                                    • Figure 51: Attitudes towards inheritance and property in retirement, by repertoire of expected sources of retirement income, March 2012
                                                                                                                                                  • Consideration of downsizing is driven by confidence in retirement finances
                                                                                                                                                    • Figure 52: Attitudes towards inheritance and property in retirement, by expectations of retirement finances, March 2012
                                                                                                                                                  • Some scope to target those who want to enjoy their retirement
                                                                                                                                                    • Figure 53: Attitudes towards equity release schemes, by most popular attitudes towards inheritance and property in retirement, March 2012
                                                                                                                                                • Appendix – Product Definitions and Market Background

                                                                                                                                                    • Target market
                                                                                                                                                      • Lifetime mortgage
                                                                                                                                                        • Home reversion plan
                                                                                                                                                          • Tax implications
                                                                                                                                                            • Regulation
                                                                                                                                                              • SHIP
                                                                                                                                                              • Appendix – Market Forecast

                                                                                                                                                                  • Figure 54: Market forecast – best and worst case scenario, by volume, 2011-16
                                                                                                                                                                  • Figure 55: Market forecast – best and worst case scenario, by value, 2011-16
                                                                                                                                                              • Appendix – Sources of Retirement Income

                                                                                                                                                                  • Figure 56: Expected sources of retirement income, by demographics, March 2012
                                                                                                                                                                  • Figure 57: Expected sources of retirement income continued, by demographics, March 2012
                                                                                                                                                                  • Figure 58: Expected sources of retirement income continued, by demographics, March 2012
                                                                                                                                                                  • Figure 59: Repertoire of expected sources of retirement income, by demographics, March 2012
                                                                                                                                                              • Appendix – Confidence About Retirement Finances

                                                                                                                                                                  • Figure 60: Expectations of retirement finances, by demographics, March 2012
                                                                                                                                                                  • Figure 61: Expectations of retirement finances continued, by demographics, March 2012
                                                                                                                                                              • Appendix – Attitudes Towards Equity Release Schemes

                                                                                                                                                                  • Figure 62: Attitudes towards equity release schemes, by demographics, March 2012
                                                                                                                                                                  • Figure 63: Attitudes towards equity release schemes continued, by demographics, March 2012
                                                                                                                                                              • Appendix – Attitudes Towards Inheritance and Property in Retirement

                                                                                                                                                                  • Figure 64: Attitudes towards inheritance and property in retirement, by demographics, March 2012

                                                                                                                                                              Companies Covered

                                                                                                                                                              • Age UK
                                                                                                                                                              • Asda Group Ltd
                                                                                                                                                              • Aviva Plc
                                                                                                                                                              • Bank of England
                                                                                                                                                              • Barclays Capital
                                                                                                                                                              • British Broadcasting Corporation (BBC)
                                                                                                                                                              • Financial Services Authority (The)
                                                                                                                                                              • Freemans Plc
                                                                                                                                                              • Government Actuary's Department (GAD)
                                                                                                                                                              • Grainger plc
                                                                                                                                                              • Investec
                                                                                                                                                              • Ipsos MORI
                                                                                                                                                              • ITV plc
                                                                                                                                                              • J. Sainsbury
                                                                                                                                                              • Just Retirement Ltd
                                                                                                                                                              • Kantar Media
                                                                                                                                                              • Key Retirement Solutions
                                                                                                                                                              • Liverpool Victoria Friendly Society Limited
                                                                                                                                                              • Marks & Spencer
                                                                                                                                                              • Northern Rock plc
                                                                                                                                                              • Procter & Gamble USA
                                                                                                                                                              • Safe Home Income Plans (SHIP)
                                                                                                                                                              • Saga Group
                                                                                                                                                              • Stonehaven
                                                                                                                                                              • Tesco Plc
                                                                                                                                                              • Waitrose
                                                                                                                                                              • Wm Morrison Supermarkets

                                                                                                                                                              Equity Release Schemes - UK - May 2012

                                                                                                                                                              £1,995.00 (Excl.Tax)