Bob Hunt is chief executive of Paradigm Mortgage Services
The equity release market, up until last year, had not exactly been overwhelmed by huge numbers of (what we might call) ‘mainstream’ lender participants. By this I mean ‘brand names’ which the vast majority of Joe Public can see on their high street (and are fully aware of) have tended not to be active in equity release. Of course there are major players like Aviva and L&G but the lending community has not tended to follow their lead
Which of course is not to say that equity release providers, and the sector itself, is not an important one, or the products themselves are not an increasingly valid option for those seeking to release cash from their properties. It is and they are. However, and I’ve heard this from a number of specialist advisers and indeed providers, it has been missing that big ‘brand’ lender name that may very well add considerable marketing message bulk and may ultimately add to the credibility of the sector.
I think we all know of the reputational fights the sector continues to come up against, even though the regulated nature of the products, their flexibility, pricing, advice-driven supply, etc, all adds to a vastly different equity release option than 10/15 years ago. That suspicion of the product, generated by ‘scandals’ which took place over 25 years ago, has been hard to shake however both SHIP, and now the Equity Release Council, have fought the good fight particularly over the last decade and have made great strides.
The distance the sector has travelled is significant, and one only needs to look at the lending figures for equity release over the past 12-18 months to see its upward trajectory. Many demographic and economic changes have fundamentally changed the demand drivers for the product and one can only see a future in which equity release continues to grow. Look at the UK’s pension situation, add in the interest-only ‘crisis’, think of the long-term care needs, drop an ever-ageing population into the mix, and you can see that demand is likely to remain strong for some time to come.
Within this environment, it is perhaps not surprising that more mainstream operators have been eyeing the sector up, and now seem to be making their moves. Last year it was L&G, now it appears the Nationwide Building Society will be the first major lender to follow its lead, recently announcing that it wants to launch ‘clear, simple and safe’ products – I’m sure existing providers will argue that’s exactly what they already do with the added safeguards required of them by the Equity Release Council standards, but perhaps that’s by the by.
But, why now? Those demand drivers have been in place for a good number of years. Why should the UK’s biggest mutual, a top five lender, now think equity release is a sector worth accessing? Well, perhaps the answer lies in the rest of the mainstream market – competition levels have increased a lot. Not only do we have the banks and the building societies, but we have the challengers, the specialists, and the niche players. Many of those are seeking to fish in the same waters as the Nationwide and therefore now might be the time when mainstream players have to look at other proverbial lakes and rivers.
Given that’s the case, why not look at sectors which are likely to be growth opportunities such as equity release? For some, a quick look at their existing book will be enough to show them the potential clients that exist there – not so long ago Santander suggested it might offer an equity release product in order to support its interest-only customers coming to the end of their terms, who may not have sufficient money in a repayment vehicle to pay off the capital sum. This has yet to materialise but it’s not too difficult to think that the same ‘problem’ exists for many lenders in the same situation. Add in the competitive nature of other sectors and equity release looks much more attractive than it has ever done.
So, does this mean that equity release is about to go mainstream? Perhaps not overnight, but certainly we can anticipate far greater lending levels in the future. However, despite the current announcements, I think it’s a step too far to say that the mainstream has gone, or is going, equity release.