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Equity Release Schemes - UK - May 2015

“The equity release market has enjoyed another successful year in 2014, and the momentum has continued into the start of 2015. All the signs suggest that equity release is becoming a more mainstream product in later-life planning, driven by a growing target demographic, underpinned by a strong property market and framed in clear regulatory conditions. This, combined with a growing shortfall in retirement savings, mean the industry will continue to expand into the next decade.”
– Sean Song, Financial Services Analyst

This report discusses the following key topics:

  • Pension freedoms: Bringing equity release into the retirement equation
  • Mortgage Market Review unintentionally boosts equity release’s role in retirement planning
  • Equity release competition set to heat up in 2015

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Table of contents

  1. Executive Summary

      • The market
        • New equity release values grow 29% to total £1.38 billion in 2014
          • Figure 1: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
        • Volumes of plans sold increases 13% in 2014
          • Figure 2: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
        • There is a growing number of home-owners over the age of 55
          • Figure 3: Tenure, by age of household reference person – England, 2013/14
        • Greater supply and demand forecasted, underpinned by consistent long-term growth in property prices
          • Figure 4: UK mix-adjusted house prices, 1999-2014
        • Forward-thinking approach from the FCA has paved the way for product innovation
          • Companies and brands
            • Aviva, Just Retirement and LV= expand and consolidate
              • Figure 5: Equity release market share, by value of new sales, 2014
            • Advertising spend on equity release increases 38% over 12 months to April 2015
              • The consumer
                • Pensions coverage is comprehensive, but pension pot size may not be sufficient
                  • Figure 6: Expected/actual retirement income sources, by tenure, February 2015
                • Nearly one in four over-45s only expect/have one source of retirement income
                  • Figure 7: Number of different types of expected/actual retirement income sources, February 2015
                • Many consumers misunderstand key product features
                  • Figure 8: Equity release awareness, February 2015
                • Over 45s who understood that equity release can go toward paying off existing mortgage debts are more likely to be open to it
                  • 44% of consumers are getting by but unable to save for luxuries, representing a large target market with high potential
                    • Figure 9: Retirement wellbeing in retirement, February 2015
                  • 12% of owner-occupiers would consider equity release
                    • Figure 10: Likeliness to apply for equity release, February 2015
                  • Greater appeal of equity release to those aged 45-54-years-old
                    • Figure 11: Likeliness to apply for equity release, by age, February 2015
                  • Barriers to uptake
                    • Figure 12: Equity release attitudes, February 2015
                • Issues and Insights

                  • Pension freedoms: Bringing equity release into the retirement equation
                    • The facts
                      • The implications
                        • Mortgage Market Review unintentionally boosts equity release’s role in retirement planning
                          • The facts
                            • The implications
                              • Equity release competition set to heat up in 2015
                                • The facts
                                  • The implications
                                  • The Market – What You Need to Know

                                    • The potential target market is large, and growing
                                      • There are more outright homeowners than people buying on a mortgage
                                        • Market value expands 29% in 2014, and is expected to grow near double digit figures for the next five years
                                          • Customers are releasing larger amounts of equity while drawdown plans continue to be the most popular form of equity release
                                            • The market has benefited from the forward thinking approach of the FCA
                                            • Market Drivers

                                              • 72% of people above the age of 65 own their house outright
                                                • Figure 13: Housing tenure, by age of household reference person – England, 2013/14
                                              • An ageing population, driven by improved longevity expands the target market for equity release
                                                • Figure 14: UK population, by age, 2014-34 (2012-based projection)
                                              • Average age of equity release customers increases to 71
                                                • Consistent growth in property prices increases the attractiveness of equity release…
                                                  • …as well as the average value of a property where equity is released
                                                    • Figure 15: UK mix-adjusted house prices, 1999-2014
                                                  • Rates on the market decline in early 2015
                                                    • Figure 16: Equity release average and best buy rates, January 2014-February 2015
                                                  • Lifestyle improvement tops reasons for release
                                                    • Figure 17: Reasons for equity release, full year 2014
                                                • Market Regulation

                                                  • Pensions freedoms should move equity release into the spotlight
                                                    • Forward-thinking approach from the FCA has paved the way for product innovation
                                                    • Market Size

                                                      • Volume of plans and overall value of advances both grow at record rates in 2014
                                                        • Figure 18: Sales of equity release schemes, 2008-14
                                                      • New sales volume expected to increase 74% in five years
                                                        • Figure 19: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
                                                      • New equity release advances to increase to over £2.3 billion in 2019
                                                        • Figure 20: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
                                                        • Figure 21: Forecast of equity release schemes, at current and constant prices, 2014-19
                                                      • Forecast methodology
                                                        • Fan chart explanation
                                                        • Market Segmentation

                                                          • Drawdown plans remain the favourite form of equity release
                                                            • Figure 22: Proportional distribution of new equity release sales, by product type, 2010-14
                                                          • Average amount of equity released increases for both drawdown and lump sum products
                                                            • Figure 23: Average amount released, by product type, 2013-14
                                                        • Key Players – What You Need to Know

                                                          • Aviva and Just Retirement enjoy successful years as the industry edges closer to a duopoly
                                                            • Aviva and Just Retirement broaden their sales channels
                                                              • Providers diversify and extend product range
                                                                • Equity release providers ramp up advertising spend with 38% increase spending in 2015
                                                                • Market Share

                                                                  • The market is dominated by three major providers
                                                                    • Aviva maintains its position as market leader with over 50% market share
                                                                      • Figure 24: Equity release market share by value of new sales, 2014
                                                                    • Aviva boosts new sales values by 74% after a tough 2013
                                                                      • Figure 25: Top three equity release providers, by value of new sales, 2011-14
                                                                    • Just Retirement also steams ahead with 54% increase in new value sales
                                                                    • Competitive Strategies

                                                                      • Product providers
                                                                        • Intermediary activity
                                                                          • The market organises and consolidates
                                                                            • New entrants and products
                                                                            • Brand Communication and Promotion

                                                                              • Advertising spend on equity release increases 38% over 12 months to April 2015
                                                                                • Figure 26: Recorded above-the-line, online display and direct mail advertising expenditure on equity release schemes, 2011-15
                                                                              • A growing emphasis on digital marketing
                                                                                • Aviva boosting advertising spend
                                                                                  • Figure 27: Recorded above-the-line, online display and direct mail advertising expenditure on equity release schemes, by advertiser, 2011-15
                                                                                • A note on adspend
                                                                                • The Consumer – What You Need to Know

                                                                                  • Pensions coverage is comprehensive, but pension pot size may not be sufficient
                                                                                    • Nearly one in four people over 45 are expecting/currently have one source of retirement income
                                                                                      • Consumers often misunderstand equity release product features
                                                                                        • Most consumers are expecting a frugal retirement
                                                                                          • One in 10 home-owners over 45 would consider equity release
                                                                                            • Many consumers view equity release as a final resort, but also as a valuable option
                                                                                              • Barriers to uptake
                                                                                                • Trust and awareness
                                                                                                • Retirement Income Sources

                                                                                                  • Survey background
                                                                                                    • Most respondents will be able to draw on a private pension
                                                                                                      • Half of all home owners above 45 expect to/have access to non-pension incomes
                                                                                                        • Figure 28: Expected/actual retirement income sources, by tenure, February 2015
                                                                                                      • Men are more likely to have investments and their own private pension
                                                                                                        • Figure 29: Expected/actual retirement income sources, by gender, February 2015
                                                                                                      • Nearly one in four over-45s only expect/have one source of retirement income
                                                                                                        • Figure 30: Number of different types of expected/actual retirement income sources, February 2015
                                                                                                    • Equity Release Awareness

                                                                                                      • Equity release products are often misunderstood by consumers
                                                                                                        • Consumer understanding of what they can do with the money can improve product appeal
                                                                                                          • Figure 31: Equity release awareness, February 2015
                                                                                                        • 45-54-year-olds show better awareness of product features
                                                                                                          • However, more can be done to improve product transparency amongst 65-74-year-olds
                                                                                                            • One in five over 45s have not heard of equity release schemes
                                                                                                              • Figure 32: Equity release awareness, by age, February 2015
                                                                                                            • The majority of over 45s are unaware that equity release providers must offer advice
                                                                                                              • Figure 33: Equity release awareness on advice and guidance, February 2015
                                                                                                          • Financial Wellbeing in Retirement

                                                                                                            • A sizeable minority worry about their financial security
                                                                                                              • Figure 34: Retirement financial situation, February 2015
                                                                                                            • 44% of consumers are getting by but unable to save for luxuries, representing a large target market
                                                                                                              • 40% of people are confident about their financial situation in retirement
                                                                                                                • People who own a home are more likely to be/expecting to be financially comfortable in retirement, yet those ‘getting by’ remains the same
                                                                                                                  • 17% of people above 45 who are buying a home are struggling/expecting to struggle financially in retirement
                                                                                                                    • Figure 35: Retirement financial situation, by tenure, February 2015
                                                                                                                  • A quarter of all 45-54 year olds are/will be struggling financially in retirement
                                                                                                                    • Figure 36: Retirement financial situation, by age, February 2015
                                                                                                                • Consumer Willingness to Use Equity Release Schemes

                                                                                                                  • 12% of owner-occupiers would consider equity release
                                                                                                                      • Figure 37: Likeliness to apply for equity release, February 2015
                                                                                                                    • 16% of people above 45 who are buying on a mortgage may consider equity release
                                                                                                                        • Figure 38: Likeliness to apply for equity release, by tenure, February 2015
                                                                                                                      • Openness toward equity release decreases with age
                                                                                                                          • Figure 39: Likeliness to apply for equity release, by age, February 2015
                                                                                                                      • Attitudes toward Equity Release

                                                                                                                        • Many consumers view equity release as a final resort
                                                                                                                          • Figure 40: Equity release attitudes, February 2015
                                                                                                                        • A fast-track to funds? Not equity release
                                                                                                                        • Barriers to Uptake

                                                                                                                          • Leaving behind less for loved ones
                                                                                                                            • Equity release can undermine consumers’ sense of security
                                                                                                                              • Poor value for money
                                                                                                                                • Figure 41: Equity release attitudes, February 2015
                                                                                                                              • Trust concerns
                                                                                                                                • Consumer awareness is low for now
                                                                                                                                  • Figure 42: Equity release attitudes, February 2015

                                                                                                                              Companies Covered

                                                                                                                              To learn more about the companies covered in this report please contact us.

                                                                                                                              Equity Release Schemes - UK - May 2015

                                                                                                                              £1,995.00 (Excl.Tax)