Consumer Demand in Equity Release
The market for Regulated Equity Release is currently worth approx £1.3billion per annum and has grown as follows.
Source: SHIP
The equity release market is currently made up of 91% Lifetime Mortgages and 9% Home Reversions.
Within the Lifetime Mortgage sector of the market, the “Flexible Cash Drawdown” product now represents approx 58% of the Lifetime Mortgage market.
The equity release market is consistently developing due to increased competition in the market, customer awareness and product development. Providers in the equity release market are offering increasingly more flexible product options including no fees for valuations and flexible drawdown facilities. A small number of providers have also introduced impaired life products onto the market.
A recent survey amongst SHIP members revealed that amongst customers the most popular product features were the drawdown option, no fees or free valuations, flexibility in plans and plans that were free of early redemption charges.
Social and market indicators suggest that the need for equity release will increase.
And despite the current downturn property prices have still grown significantly over the last decade. HMRC data on the distribution of wealth amongst pensioners shows that around 50% of retirees’ wealth is held within residential property.
Another key factor is the changing demographics of the UK. Analysis by National Statistics shows that there are now more pensioners than under-16’s for the first time ever. Pensioners in mid-2007 made up 19% of the UK population with under-16’s comprising 18.9%.
This represents a substantial demographic shift driven not only by a decline in birth rates but also by an increase in life expectancy - someone who is 65 today will on average live to see their 86th birthday, while a third of 65 year olds will celebrate their 90th birthdays.
Many are now living healthier and more active lifestyles in retirement. The arrival of the baby boomer generation has also brought about a fundamental change in consumer attitudes. This generation heralded the birth of the “SKIer” phenomenon (Spending the Kids Inheritance) - gone are the days when people feel they have to leave as large an inheritance as possible.
Crucially, the 2006 DWP Pensions survey showed that equity release schemes had a high level of awareness (90%) amongst owner-occupiers. It also showed that of those comfortable with using their home to fund their retirement, around 22% would consider using equity release.
This change in attitude together with a growing need for additional funding in retirement will help to drive the equity release market in the future.