Why Advise in this market

• General Information
• White Paper
• Consumer Demand
• Why Advise in this market
• The Equity Release Market
• The Need for Equity Release
• Typical Client Types
• Qualifications
• Adviser Support

Future growth prospects

The Equity Release market is expected to grow for the following reasons:

• Ageing population
• Inadequate pensions
• High level of home ownership
• Low current penetration level
• High percentage of assets tied up in Property
• Changing attitude towards inheritance
• Increased expectations of standard of living in retirement
• Government concern about the cost of long term care

Ageing population

According to the UK office for national statistics the population levels for those over 50 was projected at 21 million in 2008, this is 34 per cent of the population and over the next twenty years the over 50s will grow to represent 39 per cent of the population. Those aged 75 and above account for 8 per cent of the population currently and in twenty years time this figure will grow to 11 per cent. (ONS Data 2006)

The combination of people living longer and lower fertility rates in the UK means that the older population represents a much larger proportion of the population as a whole.

An aging population has brought with it many challenges for British society, including debates and policy initiatives surrounding issues which older people face including pensions, age discrimination and long term care.

The Age Composition of the Older Population in the UK

Source: Office for National Statistics; Government Actuary's Department and Link between income, savings and retirement, Keele University, May 2008

Inadequate pensions

Most people have personal pensions in place yet only a minority feel that theirs will be enough to sustain them throughout their retirement.

Retirement under savers can be defined as those who are likely to receive an income that does not provide for their reasonable expectations of quality of life during retirement.

A poll conducted by GE Money showed that nearly three out of five Britons have a pension, with this falling to one in six among 18-to-24 year-olds, but rising to almost three out of four among 35-to-54 year-olds and to around four out of five for those aged 55 and over. Yet barely more than one in four people believe that their pension will provide them with an adequate income after they have finished working, although this again included nearly half of all 55-to-64 year-olds and three out of five over-65s. Inadequate pensions and retirement savings have arisen for a variety of reasons including individuals not trusting private pensions and because the UK pensions system has historically been complex and not understood.

6.3 High level of home ownership

Residential property is the one asset that British people have demonstrated enthusiasm to invest in. Over 70% of the over 60s now own their property (source: General Household Survey 2007),and within this property-owning class are many who have inadequate pension provision.   The sums involved are meaningful - with the average property value currently £195,000
(source http://www.communities.gov.uk/documents/statistics/pdf/1176201.pdf) the aggregate value of property owned by the over 60s is £1,220bn. And according to the Wanless report on care, some 45 per ,cent of the current retired population of home – owners have inadequate retirement income (Poole, 2006, p.24.

Drawing on housing equity could improve the quality of older people’s lives significantly, helping them to live more comfortably in their own homes for longer.

6.5 High percentage of assets tied up in Property

Trends in assets have seen current older people becoming the wealthiest in history, resulting from rising property wealth. The Deloitte’s wealth survey undertaken in 2002 considered total housing wealth net of mortgages and showed that the mean housing wealth by age of household rose from £79,000 in the age group 55-64 and to £87,000 in the age group 65-74.(Deloittes key facts 2002)

6.6 Changing attitudes towards inheritance

Research carried out by Keele University and King's College, London identified Baby Boomers as having a changing attitude towards inheritance, with surveys suggesting they are more likely to want to use their wealth to enjoy life than to worry about leaving a bequest. The baby boomer generation, born between 1945 and 1954, now represents 17 per cent of the UK population. (The Changing Relationship between Production and Consumption Simon Biggs et al 2006)

6.7 Increased expectations

Britain’s Post war Baby Boomers were explicitly identified in the UK Department of Trade and Industry (DTI) sponsored Foresight exercise. The Ageing Population Panel emphasized the extent to which: ‘In the immediate future, the population will become more middle-aged, as the big generation of post war baby boomers ages into its forties and fifties. Just as many of today’s fifty year-olds are reinventing what it means to be middle-aged, so we can expect them in the years ahead to reinvent what it means to be older’. (DTI, 2000:12). The implications of this are viewed as twofold: firstly, the need to move from earlier to later retirement ages – in particular raising pension ages in line with the improvements to life expectancy and second, presenting new marketing opportunities for industry, including the equity release market.

The research identified global travel and cosmopolitan food choices as powerful examples of lifestyle activities associated with the boomer generation: 81 per cent of the people surveyed went on holiday abroad at least every two years.

Baby boomers have been widely characterized as more individualistic than previous generations, leading to suggestions that this would make them less family oriented. Yet the research shows that family responsibilities among boomers has increased rather than reduced. Demographic data shows that 43 per cent of those born between 1945 and 1952 have at least one child living at home while 37 per cent have financial responsibility for other members of the household - usually children. Improvements in life expectancy mean that 43 per cent of people aged 50-57 still have a mother alive, and 20 per cent a father. 

Housing has played a big part in the boomers' lives. The proportion of owner-occupiers rose from around one in four in 1950 to two-thirds by the mid-1980s. Today, 33 per cent of boomers own their homes outright and 52 per cent have mortgages, while 15 per cent have second homes.

6.8 Cost of long term care

It is far cheaper to keep a person in their home than to move them into a hospital or hospice. As a result the Government and other commentators such as the Joseph Rowntree Foundation are starting to recognize that Equity Release can potentially be a solution to the problem for homeowners, as they can release cash from their home to pay for the modifications which may be required to enable a homeowner to stay in their home longer, which might include stair lifts, ramps, adaption’s to bathrooms etc and care in the home.

The cost of care in retirement can be very expensive, with the average annual cost of residential care in a home costing an average £32,000. This stands at five times more than the average annual cost of receiving care in the home, at £6,846.

There is also growing evidence that older people’s life expectancy is materially improved by staying in their own home rather than moving into a home

6.9 Volume Projections

Various independent commentators have developed forecasts for the growth in the Equity release market. There is a general consensus of opinion that there is considerable potential for the market to expand significantly.

According to forecasts made by Mintel, sales within the equity release market will increase by 51 per cent by 2012 over 2006 though the annual rate of growth will remain subdued until 2009/2010. This is on a similar track to the Institute of Actuaries 2005 report which suggested that the market could double by 2010, subject to major caveats about who was in the market, regulatory developments and changes in the attitudes and behavior of consumers.

Economic and social indicators suggest that equity release will have a greater part to play in retirement planning. One indicator is the declining amount of money being invested in to pension funds. Today’s average pension fund size is only £26,000 (Source: Prudential) which will not provide a sizeable annuity.

Combine this with increasing life expectancy, higher living costs and rising inflation and it is not surprising that more and more retirees are looking to alternative sources to fund their retirement needs.

The effects of the credit crunch have also had a massive impact on the retired. Many have seen the value of their pension fund severely affected, and with the current low interest rates many pensioners have seen their income dwindle dramatically.

The UK housing market may have slowed in 2008, but this follows almost a decade and a half of unprecedented growth in property prices. One in two people aged over 50 own their property outright (source: Office of National Statistics 2005). As a result, retirees own significant amounts of equity in their homes.

With recent research (Source: Prudential research August 2008) showing that 83% of over 55’s agree that they think it is important to stay in their own home during retirement, increasing numbers are likely to look to their property to provide them with additional income during retirement.

Adviser remuneration has also changed considerably. Following regulation the advice surrounding equity release is now recognized as a true part of financial planning, meaning that the charging of advice fees together with commission is now the norm.

Access to the market is getting easier and easier for intermediaries. Most providers offer specialist adviser support, providing help and guidance on how to enter the market and how to work compliantly within it. Organizations such as the Personal Finance Society and the Association of Mortgage Intermediaries offer comprehensive guidelines, compliant tools and processes for advisers to follow and there are downloads available from SHIP.

The Council of Mortgage Lenders has stated that they believe the equity release market has huge potential over the next 20 to 30 years. (Source: Please release me! A review of the equity release market in the UK. CML March 2008) and with a growing aging population equity release will become more and more of a logical decumulation option. Advisers who work with clients who are retired or looking at retirement should be aware of all options open to their customers and it is therefore imperative that advisers at the very least have a good understanding of equity release backed up by the appropriate qualifications if they choose to advise their clients in this area.