Table of Contents
Introduction and Abbreviations
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- Global information and research
- Consumer research
- ACORN
- Abbreviations
Premier Insight
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- C2DE over-55s should be specifically targeted by providers
- IFAs and mainstream lenders can address different groups of consumers
- Promotional efforts can underline varying reasons to release equity
- Sensible underwriting to be tested going forward and will demand product flexibility
Executive Summary
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- Strong house price growth has boosted the level of housing equity…
- …while a number of trends have increased the need to release equity
- Equity release sales amounted to £1.2 billion in 2004
- Estimates suggest the market could soon be worth £5 billion per annum
- Norwich Union, Northern Rock and Mortgage Express dominate the market
- Around 60% of new sales now originate from the intermediary sector
- One in seven homeowners aged 65+ have or might release equity
- Homeowners seek to release equity for a variety of reasons
- Around one in ten homeowners think equity release is a good idea
Market Background
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- Equity release schemes allow older homeowners to access their wealth
- These products cater for the asset-rich/cash-poor sector of society
- There are two basic categories of equity release scheme
- Home reversion schemes involve selling all or part of the property
- Lifetime mortgages are special loans that run for the rest of a person’s life
- Lenders offer different types of lifetime mortgages
- The first equity release scheme was launched 40 years ago
- Emergence of unsafe plans in the late 1980s tarnished the industry’s image…
- …but the establishment of SHIP has restored faith in the sector
Market Factors
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- High owner-occupation rates are positive for the equity release market
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- Figure 1: Stock of dwellings in the UK, 1983-2003
- The majority of over-60s actually own their homes outright
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- Figure 2: Owner-occupation rates, by age of head of household in the UK, 2003/04
- The surge in property values will have boosted the level of housing equity
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- Figure 3: Real house prices in the UK, 1970-2004
- Rising inheritance values should boost the equity release market
- A possible correction in house prices could cause problems
- The UK’s ageing population profile is creating a positive backdrop
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- Figure 4: UK population, by age bracket, 1995-2025
- Women account for a greater proportion of over-65s
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- Figure 5: Number of over-65s in the UK, by gender and age, 2005-25
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- Figure 6: Life-expectancy projections at the age of 65, by gender, 1985-2025
- Erosion of state support is raising the need for self-provision
- The existence of a savings gap is further exacerbating this problem
- Equity release could increasingly fill the gap in retirement incomes
- Employment rates decline sharply among the over-65s
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- Figure 7: Economic activity rates as a percentage of the population, by gender and age, Autumn 2004
- Household incomes decline when people retire
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- Figure 8: Average gross income of pensioner units, 2003/04
- Low interest rates have also affected pensioner income levels
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- Figure 9: Bank of England base rate, end of quarter, 1972 Q1-2005 Q1
- Regulation should provide a boost to the equity release market
Market Size
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- Equity release sales totalled £1.2 billion during 2004
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- Figure 10: Total value of equity release sales by SHIP members, 1991-2004
- Lifetime mortgages account for the vast majority of sales
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- Figure 11: Total value of equity release sales by SHIP members, by product type, 1998-2004
- A resurgence in reversion sales is expected over the next few years
- In total, the equity release mortgage market is now worth around £4 billion
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- Figure 12: Equity release mortgages, new advances and balances outstanding, 2002-04
- The market has the potential to grow substantially in the next few years
- Indeed, estimates suggest sales could reach £5 billion per annum
Key Players
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- There are currently around 27 equity release providers
- Norwich Union is the leading player in the equity release market
- But most of the big mortgage providers have so far shunned the market
- Company profiles of SHIP members
- Bridgewater Equity Release
- GE Life
- Hodge Equity Release
- Home & Capital Trust
- In Retirement Services
- Just Retirement
- Key Retirement Solutions
- Mortgage Express
- National Counties Building Society
- New Life Mortgages
- Northern Rock
- Norwich Union
- Portman Building Society
- Prudential
- Standard Life
Distribution
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- Complexities of equity release mean that face-to-face contact is vital
- Equity release schemes have traditionally been sold directly to customers
- But around 60% of new sales now originate via the intermediary sector
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- Figure 13: Proportion of equity release sales, by distribution channel, 2003-05
- Intermediaries increasingly view equity release as an important sector
- But some customers will still prefer to deal directly with providers
Advertising and Promotion
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- Advertising and promotion will play a vital role in future market growth
- The industry invested £13 million in advertising during the last 12 months
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- Figure 14: Advertising expenditure on equity release products, by media type, March 2004-February 2005 and March 2003-February 2004
- Norwich Union has invested most heavily in advertising
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- Figure 15: Advertising expenditure on equity release products, by organisation, March 2004-February 2005
Consumer Financial Activity
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- Activity levels are down
- Relationship with the main financial services providers
- Saving and investment activity is set to slow
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- Figure 16: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2003-December 2004
- Above-average activity from those aged 40-49
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- Figure 17: Expected financial activity, by socio-demographic and income groups, December 2004 and average for the last 12 quarters
- Consumers are placing a deposit, but not much else
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- Figure 18: Leading financial activities planned in the next six months, December 2003-December 2004
- Mortgage demand reflects slowdown in the property sector
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- Figure 19: Intended mortgage and property purchase activity, June 2002-December 2004
- The position primarily unchanged among MFSPs
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- Figure 20: Leading main financial services providers: Market shares, December 2003-December 2004
- RBS set to benefit from increased mortgage activity
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- Figure 21: Saving, investment and lending, market sizes by expected customer demand and brand leaders (overall % intending to undertake activity in brackets), December 2004
- RBS customers remain the most active – NatWest can also expect high business levels
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- Figure 22: Activity levels of main financial providers’ customer bases, December 2004
The Consumer
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- Two thirds of all adults in the UK are homeowners
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- Figure 23: Housing tenure, March 2005
- Around 10 million over-55s own their homes outright
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- Figure 24: Housing tenure, by gender, age and socio-economic group, March 2005
- More than seven in ten in the ABC1 55+ group own homes outright
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- Figure 25: Housing tenure, by age/socio-economic group and TV region, March 2005
- Six in ten consumers in the family lifestage hold a mortgage
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- Figure 26: Housing tenure, by lifestage, working status and marital status, March 2005
- A third of mid-market tabloid readers own their homes outright
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- Figure 27: Housing tenure, by newspaper readership, commercial TV viewing and supermarket usage, March 2005
- More than one in ten homeowners have released equity in their home
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- Figure 28: Homeowners who have released equity, March 2005 versus February 2003
- An additional fifth of homeowners may release equity in the future
- 18-44-year-olds are the most likely to have released equity
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- Figure 29: Homeowners who have released equity, by gender, age and socio-economic group, March 2005
- One in seven homeowners aged 65+ have or might release equity
- A fifth of ABC1 homeowners aged 55+ have or would consider releasing equity
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- Figure 30: Homeowners who have released equity, by age/socio-economic group and TV region, March 2005
- Just 3% of people who own their homes outright have released equity
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- Figure 31: Homeowners who have released equity, by lifestage, newspaper readership and housing tenure, March 2005
Consumer Attitudes and Targeting Opportunities
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- Funding home improvements is the main reason for releasing equity
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- Figure 32: Reasons for releasing equity, March 2005
- A quarter of homeowners considering equity release aim to fund retirement
- One in ten people considering equity release want to fund long-term care
- Homeowners also often release equity to fund current spending
- Outright homeowners seek to release equity for a variety of reasons
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- Figure 33: Reasons for releasing equity, by housing tenure, March 2005
- Over half of 55-64s would release equity for retirement-related reasons
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- Figure 34: Reasons for releasing equity, by gender, age and socio-economic group, March 2005
- Awareness of equity release schemes seems to be extremely high
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- Figure 35: Agreement with statements about equity release schemes, March 2005
- Around one in ten homeowners think equity release is a good idea
- Inheritance seems to be a key concern for many homeowners
- One in eight homeowners would prefer to downsize
- C2DE homeowners aged 55+ could prove to be a receptive audience
- A fifth of homeowners would seek expert financial advice
- Repertoire analysis reveals older consumers nominate more reasons
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- Figure 36: Repertoire of reasons why people would release equity, by gender, age and socio-economic group, March 2005
- Home improvements are a key driver – spending/retirement factors are secondary issues
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- Figure 37: Repertoire of reasons why people would release equity, by category of reason, March 2005
- The majority of consumers are not interested in ERS (for now)
- Typology 1 – Negative Equities (69% of sample)
- Typology 2 – Alternative Investors (8% of sample)
- Typology 3 – Anxious and Confused (7% of sample)
- Typology 4 – Lump Sum Supporters (6% of sample)
- Typology 5 – IFA Reliant (10% of sample)
- 55-64s are the main Lump Sum Supporters
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- Figure 38: Typologies according to attitudinal statements on ERS, by gender, age and socio-economic group, March 2005
- Broadsheet newspapers could be used to target the IFA Reliant
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- Figure 39: Typologies according to attitudinal statements on ERS, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, March 2005
Industry Views
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- Distribution trends
- The impact of regulation
- Future market prospects
- Other key issues
The Future
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- Demand for equity release schemes is expected to continue rising
- Intermediaries will retain their dominant position in the distribution mix
- Providers will increasingly need to support and educate intermediaries
- Lifetime mortgages will continue to dominate the market
- But reversion sales should also grow in the next few years
Forecast
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- Figure 40: Forecast of sales of the equity release schemes by SHIP members, by product, 2004-10
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- Figure 41: Forecast of the individual sectors as % of total sales, 2004-10
- Factors used in the forecast
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