The equity release market is being held back by a lack of advisers in the market, according to research released by Defaqto.
It says although the market has grown rapidly in recent year a lack of qualified advisers and solicitors is constraining the sector’s potential for future expansion.
Recent market predictions are for new equity release business to nearly double to £2.8bn by 2008, up from an estimated £1.4bn this year. But new entrants to the market could face considerable financial and reputational risks if they miscalculate their product offerings, warns the financial research company.
Defaqto believes the equity release market faces three significant hurdles:
- There is a requirement for good advice but a shortage of suitably qualified advisers and solicitors able to deal with these sales;
- The sales process is long and requires the involvement of parties other than the provider and customer, and
- Actuarial tables can understate or overstate actual life experience and any increases in longevity could see providers running into financial difficulties.
David Black, head of banking at Defaqto and the report’s author, says product providers are continually complaining about the lack of specialist brokers and solicitors advising on equity release products constraining the market.
He adds: “This shortage has been caused by a number of factors including regulation, concern over a perceived heavy-handed approach from the Financial Services Authoirty, risks of mis-selling versus rewards and a lack of education about equity release.”
Defaqto also says product design is increasingly being used to attract customers as the market becomes more competitive. It says over the past year providers have offered a wider range of drawdown facilities and that these are likely to become a key element of equity release products in years to come.
But it also calls for equity release products to provide loan advances which are based more on an individual’s personal circumstances such as location, occupation, gender and health rather than on the market as a whole.
And it says niche offerings such as enhanced terms for impaired life are likely to become more widespread as providers seek to win more business.
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