HUD Man | Norwich Union is predicting that the equity release market will hit ?2.4bn a year in the next five years as Equity Release schemes become an increasing element of retirement planning. This is a significant change from the difficulties experienced in the Equity Release sector during the late 80s and early 90s and indicates that the regulation of equity release products, starting with the formation of Safe Home Income Plans in 1991 and then the regulation by the Financial Services Authority of lifetime mortgages in 2004 and home reversion schemes in 2007, has gone a long way to restoring the reputation of the Equity Release sector.
Recent quarterly figures from Key Retirement Solutions show that the Equity Release industry is continuing to do comparatively well in an otherwise difficult market for anything to do with property. Until this quarter, the market had seen several years of continuous growth and while the number of plans is down 16 per cent year on year, the amount of money released is still up on the same period last year.
Despite encouraging sales figures there remains an issue that equity release is still seen as a product of last resort. Indeed a recent report by Which? described equity release in such terms and drew a lot of criticism from the equity release industry.
However, the development of flexible products with drawdown facilities that allow homeowners to borrow small amounts as and when they need to is beginning to increase the products appeal in the market. One significant move by Coventry Building Society through their Godiva brand has seen the removal of any early repayment charges for partial or full repayment.
This provides a benefit to many who would consider equity release in the short term, but who may wish to repay the borrowing plus rolled up interest before the sum becomes too great. An example could be someone who requires funds immediately, but who is expecting an inheritance that has been delayed. Another example would be someone looking to downsize in the future who wishes to release equity immediately for the purchase of the smaller property which could be rented out until the point arrives for the move. In the current market of falling house prices, this opens up the opportunity to buy the new property at a lower value without the need to sell the existing property which can be retained until the market recovers.
No matter how much flexibility there is with current equity release products, until borrowers are happy to tell friends and family that they have used equity release in the same way they would talk about their standard residential mortgages, there remains a significant barrier to the growth of equity release.
Opinions on how and why people will use equity release, are changing, as well as opinions on the quality of equity release products available. Many consumers aged over 55 who may qualify for equity release, have no pension, have high levels of personal debt and will face substantial pensioner inflation in coming years with equity release available to help the shortfall, and help maintain a reasonable standard of living.
With increased flexibility it is also forecast that equity release will be increasingly used for purchases such as new cars, holidays and travelling, but also for the release of capital to help children onto the property ladder with a reasonable deposit. Other indications would suggest equity release will play a key part in financing long term care in the next five to ten years.
For more information on how Equity Release can assist you, simply follow a link above.
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