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Equity Release Schemes - UK - May 2014

“Equity release providers are positioning themselves to take advantage of the expected growth in demand, as a result of an ageing population and an increase in the number of retirees with outstanding mortgage debt.”

– Sarah Hitchcock, Senior Analyst – Financial Services

Some questions answered in this report include:

  • Are attitudes towards property wealth changing?
  • Do interest-only mortgage borrowers with a short-fall at maturity represent an opportunity for equity release providers?
  • Is borrowing into retirement set to increase?

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Table of contents

  1. Introduction

      • Market definition
        • Equity Release Council
          • Abbreviations
          • Executive Summary

              • The market
                • Standard model predicts solid growth
                  • Figure 1: Forecast of new equity release advances, at current prices – fan chart, 2008-18
                • Drawdown lifetime mortgages are the preferred choice
                  • Figure 2: Proportional distribution of new equity release sales, by product type, 2009-13
                • Customer motivation and characteristics
                  • Market factors
                    • Ageing population increases demand for equity release
                      • The effect of house price inflation
                        • Lower borrowing costs have increased the attraction of lifetime mortgages
                          • Regulatory impact
                            • Companies, brands and innovation
                              • Two brands dominate
                                • Figure 3: Market shares of the top three equity release providers, by value of new sales, 2010-13
                              • Market innovation
                                • Brand reinforcement
                                  • Most new business is generated through qualified intermediaries
                                    • Figure 4: Share of equity release sales (volume), by distribution channel, 2007-13
                                  • The consumer
                                    • Sources of retirement income
                                      • Figure 5: Expected or actual sources of retirement income, February 2014
                                    • Financial situation in retirement
                                      • Figure 6: Expected or actual financial situation in retirement, February 2014
                                    • Awareness and understanding of equity release
                                      • Figure 7: Awareness of different aspects of equity release products, February 2014
                                    • Product penetration and consideration
                                      • Figure 8: Take-up and consideration of equity release, February 2014
                                    • Attitudes toward equity release and related issues
                                      • Figure 9: Agreement with attitudinal statements about equity release, February 2014
                                    • What we think
                                    • Issues and Insights

                                        • Changing attitudes about property wealth
                                          • The facts
                                            • The implications
                                              • Interest-only mortgage borrowers with a short-fall at maturity represent an opportunity for equity release providers
                                                • The facts
                                                  • The implications
                                                    • Borrowing into retirement set to increase
                                                      • The facts
                                                        • The implications
                                                        • Trend Application

                                                          • Trend: Without a Care
                                                            • Trend: Return to the Experts
                                                              • Mintel futures: Old Gold
                                                              • Market Drivers

                                                                • Key points
                                                                  • Ageing population expands target market for equity release
                                                                    • Figure 10: UK population, by age, 2014-34 (2012-based projection)
                                                                  • Increasing longevity stretches the length of time in retirement
                                                                    • Figure 11: Period expectation of life at age 55, by gender – UK, 1981-2058
                                                                  • Around three in four over-65s are homeowners
                                                                    • Figure 12: Tenure, by age of household reference person – England, 2011/12
                                                                  • UK house prices have more than doubled over the past two decades
                                                                    • Figure 13: UK average annual house prices – former owner-occupiers (not seasonally adjusted), 1994-2013
                                                                  • Home reversion plans lose more ground to lifetime mortgages
                                                                    • Interest rates on lifetime mortgages reflect the additional guarantees
                                                                      • Lower rates may be generating greater interest in remortgage activity
                                                                        • Many people are motivated to release equity to enhance their lifestyle
                                                                            • Figure 14: Most popular uses of equity release, 2013
                                                                          • Increased focused on clearing debts in 2014
                                                                            • The average customer is aged 69
                                                                              • Figure 15: Distribution of equity release schemes, by age of customer, 2013
                                                                            • Gender divide
                                                                            • Regulatory Issues

                                                                              • Key points
                                                                                • Equity Release Council establishes industry government forum
                                                                                  • MMR prohibits non-advised equity release sales
                                                                                    • Changes to the pension rules offer new opportunities for equity release
                                                                                      • Cap on care costs doesn’t go far enough
                                                                                        • Deferred payment scheme may be means-tested
                                                                                          • Changes to IHT rules have reduced need for tax mitigation
                                                                                            • Welfare reform will make it easier to judge the impact of equity release on state benefits
                                                                                            • Market SWOT Analysis

                                                                                                • Figure 16: The equity release scheme market– SWOT analysis, 2014
                                                                                            • Who’s Innovating?

                                                                                              • Key points
                                                                                                • Hodge Lifetime targets interest-only borrowers who lack a repayment strategy
                                                                                                  • Stonehaven positions itself to capitalise on the arrival of new entrants
                                                                                                    • Pure Retirement – a new brand in the equity release arena
                                                                                                      • Age Partnership diversifies into the face-to-face advice market
                                                                                                        • Newlife wins FCA approval for administration permissions…
                                                                                                          • …and launches a new lump-sum lifetime mortgage product
                                                                                                            • more 2 life launches online affordability tool and MMR support for advisers
                                                                                                            • Market Size and Forecast

                                                                                                              • Key points
                                                                                                                • A small market with good growth potential
                                                                                                                  • Market continues to recover at a respectable pace
                                                                                                                    • Figure 17: Sales of equity release schemes, 2007-13
                                                                                                                  • Steady volume growth forecast
                                                                                                                    • Figure 18: Forecast of the volume of new equity release scheme sales – fan chart, 2008-18
                                                                                                                  • House price inflation is expected to underpin strong growth in new advances
                                                                                                                    • Figure 19: Forecast of new equity release advances, at current prices – fan chart, 2008-18
                                                                                                                    • Figure 20: Forecast of equity release schemes, at current and constant prices, 2013-18
                                                                                                                  • Forecast methodology
                                                                                                                    • Fan chart explanation
                                                                                                                    • Market Segmentation

                                                                                                                      • Key points
                                                                                                                        • Drawdown remains the most popular equity release product
                                                                                                                          • Figure 21: Proportional distribution of new equity release sales, by product type, 2009-13
                                                                                                                        • Lump-sum mortgage customers tend to borrow more than those opting for drawdown
                                                                                                                          • Figure 22: Average amount released, by product type, 2011-13
                                                                                                                        • On average, customers release less than a quarter of their housing wealth
                                                                                                                          • Figure 23: Proportion of home equity released and proportion that is inheritance-protected, by product type, 2011-13
                                                                                                                        • Equity release customers tend to be further up the property ladder
                                                                                                                          • Figure 24: Average value of property owned by equity release customers versus national average house price, 2011-13
                                                                                                                      • Market Share

                                                                                                                        • Key points
                                                                                                                          • Just Retirement closes the gap between itself and the market leader
                                                                                                                            • Figure 25: Top three equity release providers, by value of new sales, 2010-13
                                                                                                                          • Scope for more providers to emerge
                                                                                                                          • Companies and Products

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

                                                                                                                                        • Key points
                                                                                                                                          • Adspend on equity release down 27% over 12 months to February 2014
                                                                                                                                            • Figure 26: Total advertising expenditure on equity releases schemes, 2010-14
                                                                                                                                          • Aviva scales back its equity release advertising
                                                                                                                                            • Figure 27: Top five advertisers of equity releases schemes, 2010-14
                                                                                                                                          • Direct mail accounts for the largest share of industry adspend
                                                                                                                                            • Figure 28: Adspend on equity releases schemes, by media type, 2010-14
                                                                                                                                          • A note on adspend
                                                                                                                                          • Channels to Market

                                                                                                                                            • Key points
                                                                                                                                              • Intermediaries play an increasingly vital role in the market
                                                                                                                                                • Figure 29: Share of equity release sales (volume), by distribution channel, 2007-13
                                                                                                                                              • Who are the leading intermediaries and what do they charge?
                                                                                                                                                • Providers continue to seek more advisers to enter the market
                                                                                                                                                • Retirement Income Sources

                                                                                                                                                  • Key points
                                                                                                                                                    • Survey background
                                                                                                                                                      • Many over-45s have a private pension or savings to support them in retirement, but is this enough?
                                                                                                                                                        • Figure 30: Expected or actual sources of retirement income, by tenure, February 2014
                                                                                                                                                      • One in nine 45-54-year-olds expect to receive a family inheritance to help fund their retirement
                                                                                                                                                        • Figure 31: Expected or actual sources of retirement income, by age, February 2014
                                                                                                                                                      • Men are better prepared for retirement
                                                                                                                                                        • Figure 32: Expected or actual sources of retirement income, by combined gender and age, February 2014
                                                                                                                                                    • Financial Situation in Retirement

                                                                                                                                                      • Key points
                                                                                                                                                        • Less than two thirds of over-45s predict, or are already enjoying, a comfortable retirement
                                                                                                                                                          • Figure 33: Expected or actual financial situation in retirement, February 2014
                                                                                                                                                        • One in ten mortgage holders aged 45+ expect to struggle to make ends meet in retirement
                                                                                                                                                          • Figure 34: Expected or actual financial situation in retirement, by tenure, February 2014
                                                                                                                                                        • 7% of mortgage holders expect their mortgage terms to extend into retirement
                                                                                                                                                          • Today’s 45-64-year-olds are less confident of having a comfortable retirement than the over-65s
                                                                                                                                                            • Figure 35: Expected or actual financial situation in retirement, by age, February 2014
                                                                                                                                                          • Most over-45s appear unconcerned about meeting potential future care costs
                                                                                                                                                            • Figure 36: Expected or actual financial situation in retirement, by combined gender and age, February 2014
                                                                                                                                                          • Retirement income provision influences financial outlook
                                                                                                                                                            • Figure 37: Expected or actual financial situation in retirement, by expected or actual sources of income, February 2014
                                                                                                                                                        • Product Awareness

                                                                                                                                                          • Key points
                                                                                                                                                            • Scope to improve consumer awareness and understanding of equity release
                                                                                                                                                              • Figure 38: Awareness of different aspects of equity release, by tenure, February 2014
                                                                                                                                                            • Very low awareness among the over-75s
                                                                                                                                                              • Figure 39: Awareness of different aspects of equity release, by age, February 2014
                                                                                                                                                          • Take-up and Consideration

                                                                                                                                                            • Key points
                                                                                                                                                              • Around 3% of over-55s have an equity release plan
                                                                                                                                                                • Figure 40: Take-up and consideration of equity release, by tenure, February 2014
                                                                                                                                                              • 45-64-year-olds show the greatest interest in equity release
                                                                                                                                                                • Figure 41: Take-up and consideration of equity release, by age, February 2014
                                                                                                                                                              • Women are more likely to consider it, while men are marginally more likely to have it
                                                                                                                                                                • Figure 42: Take-up and consideration of equity release, by combined gender and age, February 2014
                                                                                                                                                              • Equity release can apply to those with their own pension
                                                                                                                                                                • Figure 43: Take-up and consideration of equity release, by expected or actual sources of retirement income, February 2014
                                                                                                                                                              • People expecting to struggle in retirement are more likely to consider an equity release plan
                                                                                                                                                                • Figure 44: Take-up and consideration of equity release, by expected or actual financial situation in retirement, February 2014
                                                                                                                                                            • Attitudes toward Equity Release

                                                                                                                                                              • Key points
                                                                                                                                                                • Only 37% of homeowners aged 45+ want to leave their home to loved ones
                                                                                                                                                                  • Figure 45: Agreement with attitudinal statements about equity release, by tenure, February 2014
                                                                                                                                                                • Mortgage holders are more pro-equity release than outright homeowners
                                                                                                                                                                  • Appetite for downsizing declines the longer people have been retired
                                                                                                                                                                    • Figure 46: Agreement with attitudinal statements about equity release, by age, February 2014
                                                                                                                                                                • Appendix – Equity Release Products Explained

                                                                                                                                                                  • What is equity release?
                                                                                                                                                                    • Lifetime mortgages
                                                                                                                                                                      • Home reversion plans
                                                                                                                                                                        • Tax implications
                                                                                                                                                                          • Industry regulation
                                                                                                                                                                          • Appendix – Market Size and Forecast

                                                                                                                                                                            • Forecast summary
                                                                                                                                                                              • Figure 47: Forecast of new equity release sales, at current prices, 2008-18
                                                                                                                                                                            • Volume of new sales – best- and worst-case scenarios
                                                                                                                                                                              • Figure 48: Forecast of equity release volume sales – best- and worst-case scenarios, 2013-18
                                                                                                                                                                            • Value of new advances – best- and worst-case scenarios
                                                                                                                                                                              • Figure 49: Forecast of equity release advances – best- and worst-case scenarios, at current prices, 2013-18
                                                                                                                                                                            • Forecast methodology
                                                                                                                                                                            • Appendix – Retirement Income Sources

                                                                                                                                                                                  • Figure 50: Expected or actual retirement income sources (top seven), by demographics, February 2014
                                                                                                                                                                              • Appendix – Financial Situation in Retirement

                                                                                                                                                                                    • Figure 51: Expected or actual financial situation in retirement, by demographics, February 2014
                                                                                                                                                                                    • Figure 52: Expected or actual other related situations in retirement, by demographics, February 2014
                                                                                                                                                                                • Appendix – Product Awareness

                                                                                                                                                                                      • Figure 53: Awareness of different aspects of equity release (top five responses), by demographics, February 2014
                                                                                                                                                                                      • Figure 54: Awareness of different aspects of equity release (lowest four responses), by demographics, February 2014
                                                                                                                                                                                  • Appendix – Take-up and Consideration

                                                                                                                                                                                        • Figure 55: Consideration and ownership of equity release schemes, by demographics, February 2014
                                                                                                                                                                                    • Appendix – Attitudes toward Equity Release

                                                                                                                                                                                          • Figure 56: Agreement with attitudinal statements about equity release (top five responses), by demographics, February 2014
                                                                                                                                                                                          • Figure 57: Agreement with attitudinal statements about equity release (lowest five responses), by demographics, February 2014

                                                                                                                                                                                      Companies Covered

                                                                                                                                                                                      • Age UK
                                                                                                                                                                                      • Aviva Plc
                                                                                                                                                                                      • Grainger plc
                                                                                                                                                                                      • Hodge Equity Release
                                                                                                                                                                                      • Just Retirement Ltd
                                                                                                                                                                                      • Key Retirement Solutions
                                                                                                                                                                                      • Liverpool Victoria Friendly Society Limited
                                                                                                                                                                                      • London Stock Exchange plc
                                                                                                                                                                                      • LV=
                                                                                                                                                                                      • Norwich Union
                                                                                                                                                                                      • Phoenix Equity Partners
                                                                                                                                                                                      • Saga Services (finance)
                                                                                                                                                                                      • Stonehaven

                                                                                                                                                                                      Equity Release Schemes - UK - May 2014

                                                                                                                                                                                      £1,995.00 (Excl.Tax)