A good time to advise
With strong property prices and shrinking pension pots, the equity release market has been able to evolve and increase in market size quite dramatically over the last 10 years. Research has shown that there is over £1 trillion of unmortgaged equity held by the over 65’s and Datamonitor published a report saying that the equity release market could be as big as £3bn in the next five years. It’s a fantastic opportunity for advisers but my concern is the potential may not be realised, as some advisers are reluctant to enter the market.
Over the years the equity release market has seen exceptional growth with the lifetime market dominating, as the total outstanding lending at the end of 2005 reached £5.3bn. You only have to look back three years and it was only valued at around £2bn. However, over the last year, this growth has slowed. This is likely to be for a number of reasons, not least the slowdown in house price growth, though close Financial Services Authority (FSA) attention and negative sentiment towards equity release has also not helped in encouraging advisers to participate in this market.
Providers and industry bodies have a key part to play in this market by building intermediary and consumer confidence in equity release as a secure and fully regulated market. We are seeing evidence of this with Prudential sponsoring the Association of Independent Financial Advisers (AIFA) guide, which aims to assist advisers with the regulatory requirements and other issues when considering an equity release for their client. The Safe Home Income Plans (SHIP) code has also been key, by installing confidence back into the market by setting minimum product standards, including no negative equity and no repossession guarantees, which all the participating providers have to comply with. Around 95 per cent of products sold today comply with the SHIP code.
Product innovation has been crucial in taking the equity release market to another level and will continue to be a driving force over the coming years. Providers are stepping away from ‘me too’ products and looking to differentiate their products in regards to more flexibility and control for the customer. The entrance of new providers with innovative products and competitive interest rates will enhance the competitiveness of the market, which will only benefit the advisers and customers by offering different products for different needs.
Research by AIFA highlighted that as many as two-thirds of IFAs do not currently advise their clients on equity release. I hear the concerns from advisers about complications surrounding compliance and the lack of training on the products available. As well as the results of the mystery shopping exercises that the FSA carried out both last year and this year. However, while it’s true the FSA is taking a close eye, it has also been very clear in saying what it is looking for from advisers. So the only thing from stopping advisers entering the market is themselves. The reality is that entry into this market is very simple – as some banks and building societies are finding out – and given the huge opportunity that this market has for all concerned, advisers need to act now or otherwise lose out to competitors.
The market presents the advisers with a number of opportunities:
c High demand for the product
With increasing house prices, coupled with shrinking pension pots, the equity release product is now becoming an integral part of people’s retirement portfolios. With the new innovative and flexible products out in the marketplace, customers can drawdown funds to supplement their retirement income. With nearly 13million customers intending to use their property, you can see the opportunities that exist.
c Consumer education
At Prudential, our own research highlighted that 83 per cent of advisers surveyed stated their customers were not as informed as they should be when it comes to equity release products. Consumers need educating on these products given that there are different products in the market to suit different needs – which means that they need advice in order to be comfortable with their decision.
c Adviser positioning
Advisers are in the best position to advise clients on equity release, as many customers would turn to advisers for clear, transparent and honest advice.
This is good time to be an adviser in the equity release market. Demand is high and people need information and advice. Advisers should act now and realise the potential this market has not only for their business but also their customers.