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Equity Release - UK - May 2011

Abbreviations used in the report:

CML – Council of Mortgage Lenders

COB – Conduct of Business

ERS – Equity Release Scheme

FSA – Financial Services Authority

GAD – Government Actuary’s Department

GDP – Gross Domestic Product

IFA – Independent Financial Adviser

IHT – Inheritance Tax

ISA – Individual Savings Account

LTV – Loan to value

LTV – Loan to value

MCOB – Mortgage conduct of business

MEW – Mortgage Equity Withdrawal

MMR – Mortgage Market Review

NMR – Nielsen Media Research

NS&I – National Savings and Investments

OEIC – Open-ended Investment Company

RDR – Retail Distribution Review

SERA – Society of Equity Release Advisers

HIP – Safe Home Income Plans

SIPP – Self-invested Personal Pension

SMI – Support for Mortgage Interest

SRB – Safe-and-rent-back

SPSS – Statistical Package for the Social Sciences

SWOT – Strengths, Weaknesses, Opportunities, Threats

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Equity release is set for a steady recovery
              • Figure 1: Forecast of the number of new equity release plan sales – fan chart, 2005-15
            • Drawdown is currently the most successful segment of the market
              • A small market but with a large target audience
                • Market factors
                  • Social trends and policy changes exert a positive influence over the market
                    • Customer characteristics and motivations
                      • Companies, brands and innovation
                        • Post-crunch, the market has become highly concentrated
                          • Figure 2: Leading equity release providers, by new sales value, 2010
                        • Intermediaries generate the lion’s share of sales
                          • Adspend is cut back following market exits
                            • The consumer
                              • Financial situation of the over-55s has deteriorated slightly over the past year
                                • Retirement plans
                                  • Expected retirement income sources
                                    • Figure 3: Expected or actual sources used to fund retirement, February 2011
                                  • Ownership of and attitudes towards equity release
                                    • Figure 4: Attitudes towards equity release schemes, February 2011
                                  • What we think
                                  • Issues in the Market

                                      • What impact has the financial crisis had on the equity release market?
                                        • Does the recent decline in new business give a false impression of the current health of the market?
                                          • What are the long-term prospects for the equity release market?
                                            • What are the main barriers operating in the market, and how can these be overcome?
                                              • What's in a name? Does the industry need to rethink how it defines itself?
                                              • Future Opportunities

                                                • Trend: Using the home to fund retirement
                                                  • Trend: Catering for a multitude of customer types and needs
                                                  • Internal Market Environment

                                                    • Key points
                                                      • Property prices are expected to remain flat during 2011
                                                        • Figure 5: UK average house prices – former owner-occupiers (not seasonally adjusted), Q1 2000-Q4 2010
                                                      • Changes to IHT rules have reduced need for tax mitigation
                                                        • The annual cost of long-term care runs into thousands of pounds
                                                          • Figure 6: Average annual long-term care costs, by region, 2010
                                                        • Long-term care bill set to nearly double within two decades
                                                          • Figure 7: Population projections and effects on demand for long-term care – England, 1996-2031
                                                        • The Commission on Funding of Care and Support
                                                          • Simplifying the state pension
                                                            • Recent legislative changes benefiting ERS
                                                            • Broader Market Environment

                                                              • Key points
                                                                • Main market drivers
                                                                  • Ageing population expands target market
                                                                    • Figure 8: UK population, by age, 2008-27 (2008-based projection)
                                                                  • Increasing longevity has significant financial implications
                                                                    • Figure 9: Expectation of life at age 55, by gender – UK, 1981-2058
                                                                  • Household income tends to decline from age 55
                                                                    • Figure 10: Annual GB household income before tax, by age, 2010
                                                                  • Average annual pensioner income is around £21,000
                                                                    • Figure 11: Average pensioner income, by source, at current prices, 2008/09
                                                                  • More than three quarters of over-65s are owner-occupiers
                                                                    • Figure 12: Tenure, by age of household reference person – England, 2009/10
                                                                  • Huge potential to expand the equity release market
                                                                    • Figure 13: Projected number of owner-occupier households owned by the over-60s – UK, by age and type of household, 2006-26
                                                                • Competitive Context

                                                                  • Key points
                                                                    • Equity release forms part of the arsenal of retirement-planning solutions
                                                                      • Figure 14: Ownership of pensions, property and other assets, by age, September 2010
                                                                    • Low pension participation prompts people to look at the alternatives
                                                                      • ERS offers a useful alternative to downsizing
                                                                        • Tighter regulation of sale-and-rent-back schemes
                                                                        • Market SWOT Analysis

                                                                            • Figure 15: Equity release market – SWOT analysis, 2011
                                                                        • Who’s Innovating?

                                                                          • Key points
                                                                            • Some innovative products have recently emerged
                                                                              • Industry achievements over the past two decades
                                                                                • The move towards greater flexibility continues
                                                                                • Trade Perspective

                                                                                    • About the participating companies
                                                                                      • The industry needs to raise the public awareness and understanding
                                                                                        • Providers feel that ‘equity release’ aptly describes their market
                                                                                          • A government department needs to take ‘ownership’ of equity release
                                                                                            • Innovation slowly returns to the market
                                                                                              • Providers expect to see a steady pick-up in new business in 2011
                                                                                                • Assessing the impact of a sluggish housing market and the prospect of higher interest rates
                                                                                                  • Long-term prospects are sound, although there are challenges to overcome in the short term
                                                                                                    • Home reversion providers want a level playing field in the advice arena
                                                                                                    • Market Size and Forecast

                                                                                                      • Key points
                                                                                                        • A small market currently, but with good growth potential
                                                                                                          • Overall SHIP member sales fell again in 2010…
                                                                                                            • Figure 16: Volume and value of new equity release plan sales, 2005-10
                                                                                                          • …but several providers still active in the market managed impressive growth rates
                                                                                                            • Steady recovery forecast
                                                                                                              • Figure 17: Forecast of the number of new equity release plan sales – fan chart, 2005-15
                                                                                                              • Figure 18: Forecast of the value of new equity release plan advances – fan chart, 2005-15
                                                                                                              • Figure 19: Forecast of new equity release plan sales, 2005-15
                                                                                                            • Forecast methodology
                                                                                                              • Fan chart explanation
                                                                                                              • Market Segmentation

                                                                                                                • Key points
                                                                                                                  • Drawdown mortgages represent the largest slice of new business…
                                                                                                                    • Figure 20: Value of new equity release sales, by product type, 2010
                                                                                                                  • …and have done so since 2008, in terms of volume sales
                                                                                                                    • Figure 21: Volume of new equity release sales, by product type, 2006-10
                                                                                                                  • Home reversion plans represent a small proportion of the market
                                                                                                                    • Figure 22: Volume of new equity release plan sales, by type, 2006-10
                                                                                                                    • Figure 23: Value of new equity release plan sales, by type, 2006-10
                                                                                                                  • Average plan values vary depending on the product type
                                                                                                                    • Figure 24: Average new plan value, by product type, 2010
                                                                                                                • Regional and Usage Trends

                                                                                                                  • Key points
                                                                                                                    • Demand for equity release varies from region to region
                                                                                                                      • Figure 25: Volume and value of equity release schemes, average LTV and average customer age, by region, 2010
                                                                                                                    • The average customer is aged 69
                                                                                                                      • Figure 26: Distribution of equity release schemes, by age of customer, 2010
                                                                                                                    • Most common reason for releasing equity is to fund home improvements
                                                                                                                      • Figure 27: Popular uses of equity release, 2008-10
                                                                                                                    • Multiple customer types
                                                                                                                    • Market Share

                                                                                                                      • Key points
                                                                                                                        • Top three providers all grew their share in 2010
                                                                                                                          • Figure 28: Top five equity release providers, by new sales value, 2008-10
                                                                                                                        • Credit crisis has resulted in a highly concentrated market…
                                                                                                                          • …but the tide of recent market exits appears to have now turned
                                                                                                                          • Companies and Products

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

                                                                                                                                        • Key points
                                                                                                                                          • Adspend on equity release products fell again in 2010
                                                                                                                                            • Figure 29: Total advertising expenditure on equity releases schemes, 2006-10
                                                                                                                                          • Aviva again spent the most on advertising its equity release plans in 2010
                                                                                                                                            • Figure 30: Top 15 advertisers of equity releases schemes, 2008-10
                                                                                                                                          • Direct mail accounts for the largest share of industry adspend
                                                                                                                                            • Figure 31: Adspend on equity releases schemes, by media type, 2008-10
                                                                                                                                        • Channels to Market

                                                                                                                                          • Key points
                                                                                                                                            • Intermediaries play an increasingly vital role in the market
                                                                                                                                              • Figure 32: Share of equity release sales (volume), by distribution channel, 2006-10
                                                                                                                                            • Providers continue to seek more advisers to enter the market
                                                                                                                                              • Many advisers expect the RDR and MMR to have little impact on the equity release market
                                                                                                                                                • Concerns raised about FSA’s treatment of equity release
                                                                                                                                                • The Over-55s – Financial Situation and Prospects

                                                                                                                                                  • Key points
                                                                                                                                                    • One in ten over-55s are struggling or in financial difficulty
                                                                                                                                                      • Figure 33: Personal financial situation – all adults versus over-55s, March 2010 and February 2011
                                                                                                                                                    • The over-55s are most likely to spend their spare cash on dining out
                                                                                                                                                      • Figure 34: Typical uses of discretionary spending – over-55s only, March 2010 and February 2011
                                                                                                                                                    • Economic downturn has had a major impact on one in six over-55s
                                                                                                                                                      • Figure 35: Impact of the economic downturn – all adults versus over-55s, March 2010 and February 2011
                                                                                                                                                    • In particular, prevailing low interest rates have hit savings income
                                                                                                                                                      • Figure 36: Effects of the economic downturn on personal finances/wealth – over-55s only, March 2010 and February 2011
                                                                                                                                                    • Over-55s are less confident about their financial future than a year ago
                                                                                                                                                      • Figure 37: Consumer sentiment in regards to own future financial situation – all adults versus over-55s, March 2010 and February 2011
                                                                                                                                                  • Retirement Plans and Aspirations

                                                                                                                                                    • Key points
                                                                                                                                                      • One in ten over-55s expect never to retire
                                                                                                                                                        • Figure 38: Length of time to retirement, by age, June 2009
                                                                                                                                                      • Ony half of all over-55s are confident of having enough savings
                                                                                                                                                        • Figure 39: Level of confidence of personal savings providing a comfortable retirement, by age, June 2010
                                                                                                                                                      • Around one in four over-55s would use their property to fund their retirement
                                                                                                                                                        • Figure 40: Attitudes towards retirement and retirement saving, by age, June 2010
                                                                                                                                                    • Retirement Income Sources

                                                                                                                                                      • Key points
                                                                                                                                                        • About Mintel’s consumer survey
                                                                                                                                                          • Most adults are relying on the state pension to fund their retirement
                                                                                                                                                            • Figure 41: Expected or actual sources used to fund retirement, February 2011
                                                                                                                                                            • Figure 42: Expected or actual sources used to fund retirement, February 2010 and February 2011
                                                                                                                                                          • Just 1% of homeowners plan to use equity release to fund their retirement
                                                                                                                                                            • Figure 43: Expected or actual sources used to fund retirement, by tenure, February 2011
                                                                                                                                                          • Under-45s are less likely to rely on state benefits or a private pension
                                                                                                                                                            • Figure 44: Expected or actual sources used to fund retirement, by age, February 2011
                                                                                                                                                          • Men aged 65+ are a key target group
                                                                                                                                                            • Figure 45: Expected or actual sources used to fund retirement, by combined gender and age – over-45s only, February 2011
                                                                                                                                                        • Ownership and Consideration of Equity Release

                                                                                                                                                          • Key points
                                                                                                                                                            • 2% of outright homeowners have an equity release plan
                                                                                                                                                              • Figure 46: Consideration of equity release to help fund retirement, by tenure, February 2011
                                                                                                                                                            • The under-35s are more open to the idea of using equity release
                                                                                                                                                              • Figure 47: Consideration of equity release to help fund retirement, by age, February 2011
                                                                                                                                                            • Men aged 65+ are most likely to have an equity release plan
                                                                                                                                                              • Figure 48: Consideration of equity release to help fund retirement, by combined gender and age – over-45s only, February 2011
                                                                                                                                                          • Attitudes Towards Equity Release

                                                                                                                                                            • Key points
                                                                                                                                                              • Less than a third of homeowners want their family to inherit their home
                                                                                                                                                                  • Figure 49: Attitudes towards equity release schemes, by tenure, February 2010 and February 2011
                                                                                                                                                                • Mortgage holders are more pro equity release than outright homeowners
                                                                                                                                                                  • Figure 50: Attitudes towards equity release schemes, by tenure, February 2011
                                                                                                                                                                • The under-35s are keen to know more
                                                                                                                                                                  • Figure 51: Attitudes towards equity release schemes, by age, February 2011
                                                                                                                                                                • Men are generally more pragmatic and more pro equity release
                                                                                                                                                                  • Figure 52: Attitudes towards equity release schemes, by combined gender and age – over-45s only, February 2011
                                                                                                                                                              • Appendix – Report Scope and Product Definitions

                                                                                                                                                                  • Target market
                                                                                                                                                                    • Lifetime mortgage
                                                                                                                                                                      • Home reversion plan
                                                                                                                                                                        • Tax implications
                                                                                                                                                                          • Regulation
                                                                                                                                                                            • SHIP
                                                                                                                                                                            • Appendix – Profile of the Target Market

                                                                                                                                                                                • Figure 53: Demographic profile of the target market, by age, February 2009
                                                                                                                                                                            • Appendix – Sources of Income by Demographics

                                                                                                                                                                                • Figure 54: Expected or actual sources of retirement income, by demographics, February 2011
                                                                                                                                                                            • Appendix – Consideration of ERS by Demographics

                                                                                                                                                                                • Figure 55: Consideration of equity release schemes, by demographics, February 2011
                                                                                                                                                                            • Appendix – Profile of ERS Customers and Prospects

                                                                                                                                                                                • Figure 56: Demographic profile of existing ERS customers and potential prospects, February 2011

                                                                                                                                                                            Companies Covered

                                                                                                                                                                            • Age UK
                                                                                                                                                                            • Aviva Plc
                                                                                                                                                                            • Bank of England
                                                                                                                                                                            • Bradford & Bingley plc
                                                                                                                                                                            • Co-operative Group
                                                                                                                                                                            • Council of Mortgage Lenders
                                                                                                                                                                            • Department for Work and Pensions
                                                                                                                                                                            • Financial Services Authority (The)
                                                                                                                                                                            • Government Actuary's Department (GAD)
                                                                                                                                                                            • Home & Capital Trust
                                                                                                                                                                            • J. Sainsbury
                                                                                                                                                                            • Joseph Rowntree Foundation
                                                                                                                                                                            • Kantar Media
                                                                                                                                                                            • Marks & Spencer
                                                                                                                                                                            • Somerfield
                                                                                                                                                                            • Tesco Plc
                                                                                                                                                                            • Waitrose Ltd
                                                                                                                                                                            • Wm Morrison Supermarkets

                                                                                                                                                                            Equity Release - UK - May 2011

                                                                                                                                                                            £1,750.00 (Excl.Tax)