SPECIAL FEATURE: FS innovation
The ‘next big thing’ in financial services is constantly a topic of conversation.
Over the years in the mortgage market, this has ranged from shared appreciation mortgages (let’s not go there), current account/offset products (genuinely innovative) to sub-prime/non-conforming loans (again, let’s not go there).
A product area however which has been consistently trumpeted as ‘the next big thing’ in financial services – mostly by those working in the sector – is equity release.
I have lost count of the number of articles I have read, mainly from equity release providers, telling me of the potential within this sector and the fact that all the underlying demand drivers are in place to rocket equity release into the multi-billion pound lending stratosphere.
This has been going on for years and yet the numbers tend not to lie – equity release has been a long way from a multi-billion pound business; in fact, even at its zenith, it has often struggled to get far above £1bn.
In fact, immediately post-Credit Crunch, when a number of providers pulled out of the market there were some who might have thought the sector was close to drawing its last breaths in terms of new business activity.
And yet, the equity release market has come through that period and now – some might say here we go again – there is genuine confidence and enthusiasm about what the future might hold.
Last year, lending levels broke the £1 billion barrier again, and already this year according to figures from its trade association, the Equity Release Council (ERC), that mark has been broken in just three quarters.
Lending totaled £375.5m in quarter three – the largest amount ever recorded in one quarter – and there were more than 5,500 new customers during that three-month period; again the most recorded for six years.
It does appear to be that those ‘demand drivers’ that equity release stakeholders have consistently talked about could be genuinely coming together in order to move the sector onto the next level.
And it will not take a genius to work out what they might be – smaller individual pension pots equalling smaller monthly incomes, higher standards of living in retirement, a lack of other assets, issues such as the ‘interest-only timebomb’, a lack of mortgage options for over-55s, the want (and need) to help children/grandchildren get on the housing ladder, a falling amount of State support in retirement, the State pension age increasing, cuts to benefits, the cost of long-term care – the list goes on.
All these issues mean that those people facing (or in) retirement are having to find increasing amounts of money to a) continue their standard of living, and b) pay for all the other responsibilities that come with being a pensioner. With most people’s major asset being their property, it is therefore completely understandable that individuals are now much more willing to access the equity they have within their home in order to fund their retirement. Let’s also not forget that, given the increases in house prices we have seen over the past two decades, many pensioners will be sitting in assets which have increased considerably in value since they were first bought.
It is perhaps all of the above that is leading renewed interest in the sector from a provider point-of-view.
The equity release market has been shorn of what we might term household names for a number of years but the recent revelation that Santander is likely to begin offering lifetime mortgages to customers next year, could provide a significantly boost.
Part of the issue some potential customers have with equity release is that they are not always ‘name aware’ of the providers offering the products, therefore to have a high-street bank active in the market could be a pivotal moment.
Santander is essentially announcing its arrival on the back of the interest-only issue, with large numbers of borrowers reaching the end of their terms and not having the money available to pay off the capital.
I suspect that many other major lenders will, like Santander, be wanting to offer existing customers lifetime mortgages in order to get them out of this predicament.
Although, in a sector such as equity release the importance of independent, specialist advice is absolutely vital and there should be a campaign from equity release advisers to let existing interest-only mortgage customers know they should not just take the first option presented to them.
However, it would finally appear that the financial services’ Gods are currently aligning to help push the equity release sector on to the next level.
I certainly expect lending levels to continue to increase as more people access their stored equity for a huge variety of reasons.
This really could be the time when equity release makes a large leap into the mainstream – were more high-street banks to come on board, then this move is likely to become even more assured.