The equity release industry is set for a pivotal year off the back of a record-breaking 2015, with a growing number of consumers benefitting from their housing wealth to support a more comfortable later life.
Last year was equity release’s busiest yet with £1.61bn lending value. Since falling to a post-recession low of £789m in 2011, annual equity release lending has more than doubled in the last four years alone, and now exceeds its pre-recession peak of £1.21bn (2007) by 33%.
This was facilitated, in no small part, by a surge of drawdown lending in late 2015, with 70% of new plans in Q4 based on a drawdown agreement.
This boosted drawdown lending to a total value of £961m for the year: breaking quarterly, half-year and annual records in the process.
Drawdown has proven to be a particularly popular form of equity release since it allows borrowers to tap into their housing wealth only as and when they need it, meaning interest rolls up more slowly.
Overall, equity release lending increased by 16% year-on-year in 2015, and by 20% in Q4 alone, demonstrating the growing importance of housing wealth in people’s financial planning for later life.
As consumer demand increases and the ‘at retirement’ market evolves, the council is working to encourage further industry development to respond to a wider range of needs.
This must be handled deftly, however, since there is an important balancing act between meeting demand while ensuring innovation does not leave consumers less supported and move the sector away from long-term sustainability.
Quarter of a century
This year marks 25 years of safe equity release for UK consumers since the first industry standards were introduced in 1991. Since then, the ongoing work of the council, and its members to upholding best practice has been vital to building consumer confidence and supporting industry growth.
We are open-minded that the future may require different sets of product standards to be developed for different types of products.
One of the key considerations set out in the council’s Statement of Principles is that products should be – so far as is reasonably foreseeable – “future-proofed” against market developments and changes in customers’ circumstances.
Low interest rates and high house price inflation currently feel like permanent fixtures in the UK landscape, but we cannot assume this will always be the case.
The mechanics of lifetime lending and increasing longevity mean consumers need to be able to count on adequate protection in conditions that are less benign than they are today.
It is important that future growth of equity release is the right kind of growth, which sustains high levels of satisfaction, and an extremely low level of complaints.
Since its formation SHIP – later the council’s – role has been to represent the equity release sector and to ensure the products and advice it offers lead to good outcomes for consumers.
In that time, membership of the council has provided consumers with a sign that a firm’s products and services measure up to best practice. This will be ever more relevant as the retirement landscape evolves, more new entrants join, the product range continues to expand and the need for expert advice grows.
During 2016, the council will focus its efforts on building relationships to help meet the growing need from consumers to use housing wealth as a mainstream part of later life planning.
A key part of this is developing industry collaborations in advice, product development, and consumer awareness and education, as well as working with government and regulators to inform legislative and regulatory decision making.
For its part, we hope to see government follow up on the recommendation of the Work and Pensions Select Committee to include housing wealth in the retirement planning conversations initiated by its Pension Wise service.
We have also made submissions to the Treasury and the Financial Conduct Authority through the Financial Advice Market Review and the call for inputs on mortgage market competition.
We hope both initiatives will move things forwards in terms of closer working relationships between the standard mortgage and retirement planning sectors; a joined-up approach to advice; and access to a broader range of funding sources that helps bring new products to market.
The equity release market has come a long way since 1991, and there are great opportunities for a growing cast to play a role in shaping the next 25 years.
Nigel Waterson is chairman of the Equity Release Council