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Equity Release Schemes - UK - May 2015

Published By :

Mintel

Published Date : May 2015

Category :

Banking

No. of Pages : 56 Pages

The equity release market has enjoyed another successful year in 2014, and the momentum has continued into the start of 2015. All the signs suggest that equity release is becoming a more mainstream product in later-life planning, driven by a growing target demographic, underpinned by a strong property market and framed in clear regulatory conditions. This, combined with a growing shortfall in retirement savings, mean the industry will continue to expand into the next decade.
Table of Content

Executive Summary

The market
New equity release values grow 29% to total £1.38 billion in 2014
Figure 1: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
Volumes of plans sold increases 13% in 2014
Figure 2: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
There is a growing number of home-owners over the age of 55
Figure 3: Tenure, by age of household reference person – England, 2013/14
Greater supply and demand forecasted, underpinned by consistent long-term growth in property prices
Figure 4: UK mix-adjusted house prices, 1999-2014
Forward-thinking approach from the FCA has paved the way for product innovation
Companies and brands
Aviva, Just Retirement and LV= expand and consolidate
Figure 5: Equity release market share, by value of new sales, 2014
Advertising spend on equity release increases 15% over 12 months to February 2015
Figure 6: Total advertising expenditure on equity release schemes, 2011-15
The consumer
Pensions coverage is comprehensive, but pension pot size may not be sufficient
Figure 7: Expected/actual retirement income sources, by tenure, February 2015
Nearly one in four over-45s only expect/have one source of retirement income
Figure 8: Number of different types of expected/actual retirement income sources, February 2015
Many consumers misunderstand key product features
Figure 9: Equity release awareness, February 2015
Over 45s who understood that equity release can go toward paying off existing mortgage debts are more likely to be open to it
44% of consumers are getting by but unable to save for luxuries, representing a large target market with high potential
Figure 10: Retirement wellbeing in retirement, February 2015
12% of owner-occupiers would consider equity release
Figure 11: Likeliness to apply for equity release, February 2015
Greater appeal of equity release to those aged 45-54-years-old
Figure 12: Likeliness to apply for equity release, by age, February 2015
Barriers to uptake
Figure 13: Equity release attitudes, February 2015

Issues and Insights

Pension freedoms: Bringing equity release into the retirement equation
The facts
The implications
Mortgage Market Review unintentionally boosts equity release’s role in retirement planning
The facts
The implications
Equity release competition set to heat up in 2015
The facts
The implications

The Market – What You Need to Know

The potential target market is large, and growing
There are more outright homeowners than people buying on a mortgage
Market value expands 29% in 2014, and is expected to grow near double digit figures for the next five years
Customers are releasing larger amounts of equity while drawdown plans continue to be the most popular form of equity release
The market has benefited from the forward thinking approach of the FCA

Market Drivers

72% of people above the age of 65 own their house outright
Figure 14: Housing tenure, by age of household reference person – England, 2013/14
An ageing population, driven by improved longevity expands the target market for equity release
Figure 15: UK population, by age, 2014-34 (2012-based projection)
Average age of equity release customers increases to 71
Consistent growth in property prices increases the attractiveness of equity release…
…as well as the average value of a property where equity is released
Figure 16: UK mix-adjusted house prices, 1999-2014
Rates on the market decline in early 2015
Figure 17: Equity release average and best buy rates, January 2014-February 2015
Lifestyle improvement tops reasons for release
Figure 18: Reasons for equity release, full year 2014

Market Regulation

Pensions freedoms should move equity release into the spotlight
Forward-thinking approach from the FCA has paved the way for product innovation

Market Size

Volume of plans and overall value of advances both grow at record rates in 2014
Figure 19: Sales of equity release schemes, 2008-14
New sales volume expected to increase 74% in five years
Figure 20: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
New equity release advances to increase to over £2.3 billion in 2019
Figure 21: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
Figure 22: Forecast of equity release schemes, at current and constant prices, 2014-19
Forecast methodology
Fan chart explanation

Market Segmentation

Drawdown plans remain the favourite form of equity release
Figure 23: Proportional distribution of new equity release sales, by product type, 2010-14
Average amount of equity released increases for both drawdown and lump sum products
Figure 24: Average amount released, by product type, 2013-14

Key Players – What You Need to Know

Aviva and Just Retirement enjoy successful years as the industry edges closer to a duopoly
Aviva and Just Retirement broaden their sales channels
Providers diversify and extend product range
Equity release providers ramp up advertising spend with 15% increase spending in 2015.

Market Share

The market is dominated by three major providers
Other smaller providers’ market share falls
Aviva maintains its position as market leader with over 50% market share
Figure 25: Equity release market share by value of new sales, 2014
Aviva boosts new sales values by 74% after a tough 2013
Figure 26: Top three equity release providers, by value of new sales, 2011-14
Just Retirement also steams ahead with 54% increase in new value sales

Competitive Strategies

Product providers
Intermediary activity
The market organizes and consolidates
New entrants and products

Brand Communication and Promotion

Equity release adspend up 15% over 12 months to February 2015
Figure 27: Total advertising expenditure on equity releases schemes, 2011-15
Age Partnership and Aviva raise the bar on advertising spend
Figure 28: Top five advertisers of equity releases schemes, 2011-15
Aviva overtakes Saga Personal Finance (Just Retirement) as second biggest spender on equity release advertising
Direct Mail spending falls 15% yet remains the most popular form of equity release advertising
Providers turn their attention towards TV and Press advertising in 2015
Figure 29: Adspend on equity releases schemes, by media type, 2011-15
A note on adspend

The Consumer – What You Need to Know

Pensions coverage is comprehensive, but pension pot size may not be sufficient
Nearly one in four people over 45 are expecting/currently have one source of retirement income
Consumers often misunderstand equity release product features
Most consumers are expecting a frugal retirement
One in 10 home-owners over 45 would consider equity release
Many consumers view equity release as a final resort, but also as a valuable option
Barriers to uptake
Trust and awareness

Retirement Income Sources

Survey background
Most respondents will be able to draw on a private pension
Half of all home owners above 45 expect to/have access to non-pension incomes
Figure 30: Expected/actual retirement income sources, by tenure, February 2015
Men are more likely to have investments and their own private pension
Figure 31: Expected/actual retirement income sources, by gender, February 2015
Nearly one in four over-45s only expect/have one source of retirement income
Figure 32: Number of different types of expected/actual retirement income sources, February 2015

Equity Release Awareness

Equity release products are often misunderstood by consumers
Consumer understanding of what they can do with the money can improve product appeal
Figure 33: Equity release awareness, February 2015
45-54-year-olds show better awareness of product features
However, more can be done to improve product transparency amongst 65-74-year-olds
One in five over 45s have not heard of equity release schemes
Figure 34: Equity release awareness, by age, February 2015
The majority of over 45s are unaware that equity release providers must offer advice
Figure 35: Equity release awareness on advice and guidance, February 2015

Financial Wellbeing in Retirement

A sizeable minority worry about their financial security
Figure 36: Retirement financial situation, February 2015
44% of consumers are getting by but unable to save for luxuries, representing a large target market
40% of people are confident about their financial situation in retirement
People who own a home are more likely to be/expecting to be financially comfortable in retirement, yet those ‘getting by’ remains the same
17% of people above 45 who are buying a home are struggling/expecting to struggle financially in retirement
Figure 37: Retirement financial situation, by tenure, February 2015
A quarter of all 45-54 year olds are/will be struggling financially in retirement
Figure 38: Retirement financial situation, by age, February 2015

Consumer Willingness to Use Equity Release Schemes

12% of owner-occupiers would consider equity release
Figure 39: Likeliness to apply for equity release, February 2015
16% of people above 45 who are buying on a mortgage may consider equity release
Figure 40: Likeliness to apply for equity release, by tenure, February 2015
Openness toward equity release decreases with age
Figure 41: Likeliness to apply for equity release, by age, February 2015

Attitudes toward Equity Release

Many consumers view equity release as a final resort
Figure 42: Equity release attitudes, February 2015
A fast-track to funds? Not equity release

Barriers to Uptake

Leaving behind less for loved ones
Equity release can undermine consumers’ sense of security
Poor value for money
Figure 43: Equity release attitudes, February 2015
Trust concerns
Consumer awareness is low for now
Figure 44: Equity release attitudes, February 2015

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