Are we there yet: Has equity release gone mainstream?

Andrea Rozario believes equity release is well on the way to becoming a mainstream financial product, but there is still a little way to go

Within the equity release industry, our recent success has caused many to discuss the possibility that we are now ‘mainstream’.

This is, of course, not overly surprising following the success of 2014; however, is equity release truly mainstream yet? While I would love to think so, I’m not yet convinced.

Last year, new customer numbers hit levels that haven’t been seen since before the recession.

More than 21,000 people took out a new equity release plan accounting for a 13% increase in total customers from 2013 to 2014.

Annual equity release lending hit new highs (£1.38bn) in 2014, a 14% increase on the previous record set in 2007. The figures paint a rosy picture, but it’s all relative.

Figure 1 ER graph

Figure 1, above, taken from the Equity Release Council Market Report – Spring 2015, shows the steady progress the industry is making in attracting new customers.

2014 have been a very good year for the industry in a number of ways, but the reality is that we are progressing steadily.

Steady as she goes…

Steady and sustainable growth, however, should be the goal at the heart of every business operating in this market.

In an industry such as ours, the customer can be at the end of their financial tether, confused and vulnerable.

The primacy of customer care must remain and sustainable growth throughout the industry is the best way to ensure that the customer remains at the centre of every company’s ethos.

Equity release is progressing nicely, this much is true, but the mainstream is quite a way off and we must not lose sight of what’s important in our rush to get there.

Other than the raw data of customer numbers and annual lending figures, the simple fact that most of the general public, according to research, remain confused and suspicious about equity release also unfortunately undermines the view that equity release has become mainstream.

Most advisers will understand that there is still a prevalent misunderstanding surrounding the truth of equity release.

A large proportion of people still believe that equity release involves selling your home, despite lifetime mortgages not affecting ownership.

Misconception

Home reversion plans – the only products that do involve a loss of ownership – only make up a miniscule amount of the total market (under 1%), and yet, according to an Aviva survey of 2014, as many as 25% of potential customers believe this is exactly what equity release entails.

Furthermore, according to the same survey, more than 80% of people believe they have a ‘strong understanding’ of equity release, but many simply misunderstand the modern market.

It seems, despite all the progress and fighting for customer safeguards, there still remains an essential misunderstanding about the way equity release works (and, therefore, the way equity release can help).

We won’t become mainstream before we overturn this misunderstanding and start helping the general population understand the products currently on offer.

However, there is a general feeling that these misconceptions are changing and people are becoming more open to the idea of using their housing wealth via releasing equity as a viable option and this is good news for all.

High standards

We now need to keep up the same levels of service and attention that these customers need and we mustn’t take our eye off the ball and rest on our laurels.

Despite my view that equity release is not in the mainstream as of yet, the outlook is certainly not gloomy.

Those who have been suggesting that equity release is now a mainstream product are not doing so for any kind of dishonest reason, there are many factors that are making it a more attractive retirement solution: lower interest rates, new lenders, innovative products and higher LTV’s are truly stoking the fires of market competition and benefitting the customer no end.

However, I do fear that we may be being somewhat premature if we believe equity release is in the mainstream at this stage.

I firmly believe in the use of positive language and it’s refreshing to see optimism in a market that has been beleaguered with reputational issues previously, but steady and sustainable growth will benefit the industry and the customer while allowing us to still concentrate on what sets equity release apart from the mainstream: our comprehensive safeguards.

Andrea Rozario is chief corporate officer at Bower Retirement Services 

READ: Andrea Rozario on equity release and pensions freedom