Duncan Young discusses what needs to happen to grow the equity release market
Equity release is seen by many as punching below its weight. For many reasons the market has been predicted to grow, and grow substantially, but in recent years every quarterly set of SHIP statistics have shown little growth, or in the case of the latest statistics, a decline in volumes.
When talking with market participants each have a reason for this. These include:
- A legacy of poor products dominating media coverage;
- A lack of realisation about product development by both customers and advisers;
- Too few advisers operating in the equity release space;
- Complicated regulation, especially with regard to fact finds and suitability letters;
- Problems marrying up advisers with potential customers;
- And of course the credit crunch.
Yet these points are not exactly new. Equity release product providers along with trade body SHIP have been working hard to hit these concerns into the long grass. Many advisers have now passed their exams. Media coverage has markedly improved. New products are commonplace. Substantial brokerages are being grown further. But the trouble with equity release (there is always a but) is that the market has still failed to lift off.
So, we have 20 SHIP members advancing about £1.2 billion a year as well as a couple of clearers, Lloyds TSB and RBS, sitting on the sidelines. The market is just not big enough to sustain this sort of commitment, but there is no sign at the moment of anyone dropping out.
The growth story of equity release is now the accepted paradigm. Poor pensions, inadequate health care, changes in domiciliary care, debt consolidation ... the list goes on and on. Growth is viewed as inevitable. Equity release is one of the solutions for so many social and economic ills! Just wait until the next quarter, next year, growth will explode. Inevitably the equity release market may not see this growth unless the industry or product providers and advisers do more to help the cause.
I do not pretend to have the answers but below are a few thoughts which may strike the odd chord or two.
Who is equity release for?
This may seem to be a strange question, and I'm not sure that I know the industry view. Some would argue that equity release is a customer's last major financial contract. Others would say that products need to incorporate as much flexibility as possible because needs change radically through time. Then there are those who believe that equity release should be made available at 55, a full 10 years before the state retirement age.
The answer though is very important. If the equity release contract is designed for the old and frail then it is fair that the regulation is tight and carefully monitored and the media has a duty to expose malpractice.
However, if the contract has a wider application and is for the hail and hearty employed person, then perhaps the contract could easily sit under the general remit of mortgage regulation.
If SHIP and product providers (or just me) are confused then it is not surprising that mixed messages are received by advisers and the community at large.
Let's take an example of mixed messages. Some product providers advocate equity release as a strong solution for mitigating the impact of inheritance tax. Yet many other providers, networks and the FSA have raised sensible concerns on economic grounds. In terms of who is right, the answer is "it all depends!" which is not particularly helpful.
If we accept the inevitability argument for equity release - and evidence from other countries (Australia and New Zealand) is supportive of this assumption - then the focus of SHIP and product providers working with the advisory community is to accelerate a process rather than kick start one. How should the industry go about this?
The first and most obvious point is to avoid any potential banana skins and provide the media with examples of mis-selling or poor quality products. Sale and rent back schemes have threatened to overwhelm equity release and subsume them in a welter of bad publicity but thankfully a concerted effort by providers and brokers has headed off the danger.
Secondly, the market is beginning to segment along 'needs based' lines rather than product ones. At the moment there is lifetime lump sum, lifetime drawdown and various home reversion variants. It would be an easier sell if there were products for particular needs - for those aged 55, say, or for those in need of long term care. Segmentation is beginning with the increased emphasis on protected share, but it has a long way to go before it reaches the levels of other financial markets - the development of the annuity market is a good example. Once segmentation takes place arguments about what is equity release start to disperse and a clearer focus follows.
There needs to be a strong industry trade body to lobby, cajole and influence. SHIP has only had a full time director general for a few months and there is an urgency for the organisation to run before it can walk.
However, a vacuum is developing particularly on the advisory side of the equity release process and that is something that needs to be addressed. Authority and confidence from a central point could help to demystify equity release and replace the anecdotes with hard facts.
I am not recommending a revolution; more a controlled evolution. There is always a rush towards the holy grail of significant volume growth, yet if we look back at what has been achieved over the last year, many brokers have passed all of their exams and are now qualified to give equity release advice, the FSA's mortgage effectiveness review found little of noteworthy criticism and the hijacking of the term equity release by sale and rent back providers is dissipating. And last but not least, the product providers have stumped up the cash and funded a full time secretariat for SHIP.
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