Equity Release Schemes - UK - May 2015

EXECUTIVE SUMMARY
The market
New equity release values grow 29% to total £1.38 billion in 2014
Figure 1: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
Volumes of plans sold increases 13% in 2014
Figure 2: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
There is a growing number of home-owners over the age of 55
Figure 3: Tenure, by age of household reference person – England, 2013/14
Greater supply and demand forecasted, underpinned by consistent long-term growth in property prices
Figure 4: UK mix-adjusted house prices, 1999-2014
Forward-thinking approach from the FCA has paved the way for product innovation
Companies and brands
Aviva, Just Retirement and LV= expand and consolidate
Figure 5: Equity release market share, by value of new sales, 2014
Advertising spend on equity release increases 38% over 12 months to April 2015
The consumer
Pensions coverage is comprehensive, but pension pot size may not be sufficient
Figure 6: Expected/actual retirement income sources, by tenure, February 2015
Nearly one in four over-45s only expect/have one source of retirement income
Figure 7: Number of different types of expected/actual retirement income sources, February 2015
Many consumers misunderstand key product features
Figure 8: Equity release awareness, February 2015
Over 45s who understood that equity release can go toward paying off existing mortgage debts are more likely to be open to it
44% of consumers are getting by but unable to save for luxuries, representing a large target market with high potential
Figure 9: Retirement wellbeing in retirement, February 2015
12% of owner-occupiers would consider equity release
Figure 10: Likeliness to apply for equity release, February 2015
Greater appeal of equity release to those aged 45-54-years-old
Figure 11: Likeliness to apply for equity release, by age, February 2015
Barriers to uptake
Figure 12: Equity release attitudes, February 2015
ISSUES AND INSIGHTS
Pension freedoms: Bringing equity release into the retirement equation
The facts
The implications
Mortgage Market Review unintentionally boosts equity release’s role in retirement planning
The facts
The implications
Equity release competition set to heat up in 2015
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
The potential target market is large, and growing
There are more outright homeowners than people buying on a mortgage
Market value expands 29% in 2014, and is expected to grow near double digit figures for the next five years
Customers are releasing larger amounts of equity while drawdown plans continue to be the most popular form of equity release
The market has benefited from the forward thinking approach of the FCA
MARKET DRIVERS
72% of people above the age of 65 own their house outright
Figure 13: Housing tenure, by age of household reference person – England, 2013/14
An ageing population, driven by improved longevity expands the target market for equity release
Figure 14: UK population, by age, 2014-34 (2012-based projection)
Average age of equity release customers increases to 71
Consistent growth in property prices increases the attractiveness of equity release…
…as well as the average value of a property where equity is released
Figure 15: UK mix-adjusted house prices, 1999-2014
Rates on the market decline in early 2015
Figure 16: Equity release average and best buy rates, January 2014-February 2015
Lifestyle improvement tops reasons for release
Figure 17: Reasons for equity release, full year 2014
MARKET REGULATION
Pensions freedoms should move equity release into the spotlight
Forward-thinking approach from the FCA has paved the way for product innovation
MARKET SIZE
Volume of plans and overall value of advances both grow at record rates in 2014
Figure 18: Sales of equity release schemes, 2008-14
New sales volume expected to increase 74% in five years
Figure 19: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
New equity release advances to increase to over £2.3 billion in 2019
Figure 20: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
Figure 21: Forecast of equity release schemes, at current and constant prices, 2014-19
Forecast methodology
Fan chart explanation
MARKET SEGMENTATION
Drawdown plans remain the favourite form of equity release
Figure 22: Proportional distribution of new equity release sales, by product type, 2010-14
Average amount of equity released increases for both drawdown and lump sum products
Figure 23: Average amount released, by product type, 2013-14
KEY PLAYERS – WHAT YOU NEED TO KNOW
Aviva and Just Retirement enjoy successful years as the industry edges closer to a duopoly
Aviva and Just Retirement broaden their sales channels
Providers diversify and extend product range
Equity release providers ramp up advertising spend with 38% increase spending in 2015
MARKET SHARE
The market is dominated by three major providers
Aviva maintains its position as market leader with over 50% market share
Figure 24: Equity release market share by value of new sales, 2014
Aviva boosts new sales values by 74% after a tough 2013
Figure 25: Top three equity release providers, by value of new sales, 2011-14
Just Retirement also steams ahead with 54% increase in new value sales
COMPETITIVE STRATEGIES
Product providers
Intermediary activity
The market organises and consolidates
New entrants and products
BRAND COMMUNICATION AND PROMOTION
Advertising spend on equity release increases 38% over 12 months to April 2015
Figure 26: Recorded above-the-line, online display and direct mail advertising expenditure on equity release schemes, 2011-15
A growing emphasis on digital marketing
Aviva boosting advertising spend
Figure 27: Recorded above-the-line, online display and direct mail advertising expenditure on equity release schemes, by advertiser, 2011-15
A note on adspend
THE CONSUMER – WHAT YOU NEED TO KNOW
Pensions coverage is comprehensive, but pension pot size may not be sufficient
Nearly one in four people over 45 are expecting/currently have one source of retirement income
Consumers often misunderstand equity release product features
Most consumers are expecting a frugal retirement
One in 10 home-owners over 45 would consider equity release
Many consumers view equity release as a final resort, but also as a valuable option
Barriers to uptake
Trust and awareness
RETIREMENT INCOME SOURCES
Survey background
Most respondents will be able to draw on a private pension
Half of all home owners above 45 expect to/have access to non-pension incomes
Figure 28: Expected/actual retirement income sources, by tenure, February 2015
Men are more likely to have investments and their own private pension
Figure 29: Expected/actual retirement income sources, by gender, February 2015
Nearly one in four over-45s only expect/have one source of retirement income
Figure 30: Number of different types of expected/actual retirement income sources, February 2015
EQUITY RELEASE AWARENESS
Equity release products are often misunderstood by consumers
Consumer understanding of what they can do with the money can improve product appeal
Figure 31: Equity release awareness, February 2015
45-54-year-olds show better awareness of product features
However, more can be done to improve product transparency amongst 65-74-year-olds
One in five over 45s have not heard of equity release schemes
Figure 32: Equity release awareness, by age, February 2015
The majority of over 45s are unaware that equity release providers must offer advice
Figure 33: Equity release awareness on advice and guidance, February 2015
FINANCIAL WELLBEING IN RETIREMENT
A sizeable minority worry about their financial security
Figure 34: Retirement financial situation, February 2015
44% of consumers are getting by but unable to save for luxuries, representing a large target market
40% of people are confident about their financial situation in retirement
People who own a home are more likely to be/expecting to be financially comfortable in retirement, yet those ‘getting by’ remains the same
17% of people above 45 who are buying a home are struggling/expecting to struggle financially in retirement
Figure 35: Retirement financial situation, by tenure, February 2015
A quarter of all 45-54 year olds are/will be struggling financially in retirement
Figure 36: Retirement financial situation, by age, February 2015
CONSUMER WILLINGNESS TO USE EQUITY RELEASE SCHEMES
12% of owner-occupiers would consider equity release
Figure 37: Likeliness to apply for equity release, February 2015
16% of people above 45 who are buying on a mortgage may consider equity release
Figure 38: Likeliness to apply for equity release, by tenure, February 2015
Openness toward equity release decreases with age
Figure 39: Likeliness to apply for equity release, by age, February 2015
ATTITUDES TOWARD EQUITY RELEASE
Many consumers view equity release as a final resort
Figure 40: Equity release attitudes, February 2015
A fast-track to funds? Not equity release
BARRIERS TO UPTAKE
Leaving behind less for loved ones
Equity release can undermine consumers’ sense of security
Poor value for money
Figure 41: Equity release attitudes, February 2015
Trust concerns
Consumer awareness is low for now
Figure 42: Equity release attitudes, February 2015