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Equity Release Schemes - UK - May 2014

Published By :

Mintel

Published Date : May 2014

Category :

Banking

No. of Pages : 109 Pages

Equity release providers are positioning themselves to take advantage of the expected growth in demand, as a result of an ageing population and an increase in the number of retirees with outstanding mortgage debt.
Table of Content

Introduction

Market definition
Equity Release Council
Abbreviations

Executive Summary

The market
Standard model predicts solid growth
Figure 1: Forecast of new equity release advances, at current prices – fan chart, 2008-18
Drawdown lifetime mortgages are the preferred choice
Figure 2: Proportional distribution of new equity release sales, by product type, 2009-13
Customer motivation and characteristics
Market factors
Ageing population increases demand for equity release
The effect of house price inflation
Lower borrowing costs have increased the attraction of lifetime mortgages
Regulatory impact
Companies, brands and innovation
Two brands dominate
Figure 3: Market shares of the top three equity release providers, by value of new sales, 2010-13
Market innovation
Brand reinforcement
Most new business is generated through qualified intermediaries
Figure 4: Share of equity release sales (volume), by distribution channel, 2007-13
The consumer
Sources of retirement income
Figure 5: Expected or actual sources of retirement income, February 2014
Financial situation in retirement
Figure 6: Expected or actual financial situation in retirement, February 2014
Awareness and understanding of equity release
Figure 7: Awareness of different aspects of equity release products, February 2014
Product penetration and consideration
Figure 8: Take-up and consideration of equity release, February 2014
Attitudes toward equity release and related issues
Figure 9: Agreement with attitudinal statements about equity release, February 2014
What we think

Issues and Insights

Changing attitudes about property wealth
The facts
The implications
Interest-only mortgage borrowers with a short-fall at maturity represent an opportunity for equity release providers
The facts
The implications
Borrowing into retirement set to increase
The facts
The implications

Trend Application

Trend: Without a Care
Trend: Return to the Experts
Mintel futures: Old Gold

Market Drivers

Key points
Ageing population expands target market for equity release
Figure 10: UK population, by age, 2014-34 (2012-based projection)
Increasing longevity stretches the length of time in retirement
Figure 11: Period expectation of life at age 55, by gender – UK, 1981-2058
Around three in four over-65s are homeowners
Figure 12: Tenure, by age of household reference person – England, 2011/12
UK house prices have more than doubled over the past two decades
Figure 13: UK average annual house prices – former owner-occupiers (not seasonally adjusted), 1994-2013
Home reversion plans lose more ground to lifetime mortgages
Interest rates on lifetime mortgages reflect the additional guarantees
Lower rates may be generating greater interest in remortgage activity
Many people are motivated to release equity to enhance their lifestyle
Figure 14: Most popular uses of equity release, 2013
Increased focused on clearing debts in 2014
The average customer is aged 69
Figure 15: Distribution of equity release schemes, by age of customer, 2013
Gender divide

Regulatory Issues

Key points
Equity Release Council establishes industry government forum
MMR prohibits non-advised equity release sales
Changes to the pension rules offer new opportunities for equity release
Cap on care costs doesn’t go far enough
Deferred payment scheme may be means-tested
Changes to IHT rules have reduced need for tax mitigation
Welfare reform will make it easier to judge the impact of equity release on state benefits

Market SWOT Analysis

Figure 16: The equity release scheme market– SWOT analysis, 2014

Who’s Innovating?

Key points
Hodge Lifetime targets interest-only borrowers who lack a repayment strategy
Stonehaven positions itself to capitalise on the arrival of new entrants
Pure Retirement – a new brand in the equity release arena
Age Partnership diversifies into the face-to-face advice market
Newlife wins FCA approval for administration permissions…
…and launches a new lump-sum lifetime mortgage product
more 2 life launches online affordability tool and MMR support for advisers

Market Size and Forecast

Key points
A small market with good growth potential
Market continues to recover at a respectable pace
Figure 17: Sales of equity release schemes, 2007-13
Steady volume growth forecast
Figure 18: Forecast of the volume of new equity release scheme sales – fan chart, 2008-18
House price inflation is expected to underpin strong growth in new advances
Figure 19: Forecast of new equity release advances, at current prices – fan chart, 2008-18
Figure 20: Forecast of equity release schemes, at current and constant prices, 2013-18
Forecast methodology
Fan chart explanation

Market Segmentation

Key points
Drawdown remains the most popular equity release product
Figure 21: Proportional distribution of new equity release sales, by product type, 2009-13
Lump-sum mortgage customers tend to borrow more than those opting for drawdown
Figure 22: Average amount released, by product type, 2011-13
On average, customers release less than a quarter of their housing wealth
Figure 23: Proportion of home equity released and proportion that is inheritance-protected, by product type, 2011-13
Equity release customers tend to be further up the property ladder
Figure 24: Average value of property owned by equity release customers versus national average house price, 2011-13

Market Share

Key points
Just Retirement closes the gap between itself and the market leader
Figure 25: Top three equity release providers, by value of new sales, 2010-13
Scope for more providers to emerge

Companies and Products

Aviva
Just Retirement
LV=
Key Retirement Solutions
Significant others

Brand Communication and Promotion

Key points
Adspend on equity release down 27% over 12 months to February 2014
Figure 26: Total advertising expenditure on equity releases schemes, 2010-14
Aviva scales back its equity release advertising
Figure 27: Top five advertisers of equity releases schemes, 2010-14
Direct mail accounts for the largest share of industry adspend
Figure 28: Adspend on equity releases schemes, by media type, 2010-14
A note on adspend

Channels to Market

Key points
Intermediaries play an increasingly vital role in the market
Figure 29: Share of equity release sales (volume), by distribution channel, 2007-13
Who are the leading intermediaries and what do they charge?
Providers continue to seek more advisers to enter the market

Retirement Income Sources

Key points
Survey background
Many over-45s have a private pension or savings to support them in retirement, but is this enough?
Figure 30: Expected or actual sources of retirement income, by tenure, February 2014
One in nine 45-54-year-olds expect to receive a family inheritance to help fund their retirement
Figure 31: Expected or actual sources of retirement income, by age, February 2014
Men are better prepared for retirement
Figure 32: Expected or actual sources of retirement income, by combined gender and age, February 2014

Financial Situation in Retirement

Key points
Less than two thirds of over-45s predict, or are already enjoying, a comfortable retirement
Figure 33: Expected or actual financial situation in retirement, February 2014
One in ten mortgage holders aged 45+ expect to struggle to make ends meet in retirement
Figure 34: Expected or actual financial situation in retirement, by tenure, February 2014
7% of mortgage holders expect their mortgage terms to extend into retirement
Today’s 45-64-year-olds are less confident of having a comfortable retirement than the over-65s
Figure 35: Expected or actual financial situation in retirement, by age, February 2014
Most over-45s appear unconcerned about meeting potential future care costs
Figure 36: Expected or actual financial situation in retirement, by combined gender and age, February 2014
Retirement income provision influences financial outlook
Figure 37: Expected or actual financial situation in retirement, by expected or actual sources of income, February 2014

Product Awareness

Key points
Scope to improve consumer awareness and understanding of equity release
Figure 38: Awareness of different aspects of equity release, by tenure, February 2014
Very low awareness among the over-75s
Figure 39: Awareness of different aspects of equity release, by age, February 2014

Take-up and Consideration

Key points
Around 3% of over-55s have an equity release plan
Figure 40: Take-up and consideration of equity release, by tenure, February 2014
45-64-year-olds show the greatest interest in equity release
Figure 41: Take-up and consideration of equity release, by age, February 2014
Women are more likely to consider it, while men are marginally more likely to have it
Figure 42: Take-up and consideration of equity release, by combined gender and age, February 2014
Equity release can apply to those with their own pension
Figure 43: Take-up and consideration of equity release, by expected or actual sources of retirement income, February 2014
People expecting to struggle in retirement are more likely to consider an equity release plan
Figure 44: Take-up and consideration of equity release, by expected or actual financial situation in retirement, February 2014

Attitudes toward Equity Release

Key points
Only 37% of homeowners aged 45+ want to leave their home to loved ones
Figure 45: Agreement with attitudinal statements about equity release, by tenure, February 2014
Mortgage holders are more pro-equity release than outright homeowners
Appetite for downsizing declines the longer people have been retired
Figure 46: Agreement with attitudinal statements about equity release, by age, February 2014

Appendix – Equity Release Products Explained

What is equity release?
Lifetime mortgages
Home reversion plans
Tax implications
Industry regulation

Appendix – Market Size and Forecast

Forecast summary
Figure 47: Forecast of new equity release sales, at current prices, 2008-18
Volume of new sales – best- and worst-case scenarios
Figure 48: Forecast of equity release volume sales – best- and worst-case scenarios, 2013-18
Value of new advances – best- and worst-case scenarios
Figure 49: Forecast of equity release advances – best- and worst-case scenarios, at current prices, 2013-18
Forecast methodology

Appendix – Retirement Income Sources

Figure 50: Expected or actual retirement income sources (top seven), by demographics, February 2014

Appendix – Financial Situation in Retirement

Figure 51: Expected or actual financial situation in retirement, by demographics, February 2014
Figure 52: Expected or actual other related situations in retirement, by demographics, February 2014

Appendix – Product Awareness

Figure 53: Awareness of different aspects of equity release (top five responses), by demographics, February 2014
Figure 54: Awareness of different aspects of equity release (lowest four responses), by demographics, February 2014

Appendix – Take-up and Consideration

Figure 55: Consideration and ownership of equity release schemes, by demographics, February 2014

Appendix – Attitudes toward Equity Release

Figure 56: Agreement with attitudinal statements about equity release (top five responses), by demographics, February 2014
Figure 57: Agreement with attitudinal statements about equity release (lowest five responses), by demographics, February 2014

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