Equity Release Schemes - UK - May 2007

ISSUES IN THE MARKET
Key issues
Market definitions
Lifetime mortgages
Home reversion schemes
Abbreviations
INSIGHTS AND OPPORTUNITIES
Baby Boomer attitudes should begin to shape outlook of industry
Consumer awareness high but level of trust low
Mortgage relationships could present opportunities for equity release
Increasing numbers of people look for assurance of expert advice
Marketing to focus on issues with inheritances and education costs
MARKET IN BRIEF
Demographic and economic trends favourable for equity release market
Regulation prompts equity release market to review sales standards
Flexible products increase appeal of equity release schemes
Industry concerned over consumer access to quality advice
Drawdown mortgages boost sales but impact overall market value
Equity release market dominated by three providers
Direct sales channels expected to account for more business
'A quarter of homeowners can be classed as equity-rich
One in ten homeowners have released equity from their home
Funding home improvements is most popular reason to release equity
One in six consumers regard equity release schemes as ‘rather dodgy’
FAST FORWARD TRENDS
Trend 1: Downhill SKIing
Definition
Context
What Next?
Trend 2: Trust in Me
Definition
Context
What Next?
Trend 3: Pay Attention
Definition
Context
What Next?
BROADER MARKET ENVIRONMENT
Key points summary:
Ageing population increases the target market
Figure 1: UK population forecasts, by age, 2007-27
Long-term growth trends vary in gender and age bands
Figure 2: Analysis of UK population over 65, by gender and age, 2007-74
Life-expectancy will continue to rise
Figure 3: Life-expectancy projections for people aged 65, by gender, 1987-2052
Longer retirements place mounting strain on finance
Figure 4: Average gross weekly income of pensioner units, by age, 2004/05
Attempts to close the savings gap – too little, too late for many
Extending working lives to boost pensions
Figure 5: Economic activity rates as a percentage of population, by gender and age, average for 2006
More people are working over the age of retirement
Figure 6: Percentage change in econonic activity, by age, 2000-06
House price rises increase wealth held in property
Figure 7: Average house prices in UK, 1970-2006
Recent rate rises could impact the attraction of equity release schemes
Figure 8: The Bank of England’s base rate, January 1991-January 2007
A housing slowdown would represent a major threat
Desire for home ownership continues to increase
A growing proportion of owner-occupiers
Figure 9: Rates of owner-occupancy in housing stock, 1991-2011
Figure 10: Owner-occupation rates, by age, 2005
Influence of mainstream mortgage market on equity release sector
Figure 11: Total number of mortgages outstanding (at year end), 1997-2006
Figure 12: Total mortgage debt and annual growth rates, 1986-2006
House prices influence MEW
Figure 13: Value of MEW and Halifax house price percentage change year on year, 2000-06
Changing attitudes towards property?
INTERNAL MARKET ENVIRONMENT
Key points summary:
Equity release – the development of a niche market
Providers wary of accusations of mis-selling
The steadying role of SHIP
The implications of NNEG
The legacy of a ‘shady past’
Building links with outside bodies
Regulation provides a boost for the reputation of the industry…
…although sales have seen a short-term dip
Figure 14: Annual lifetime mortgage sales, 2002-06
Home reversion schemes to be regulated from 2007
Expected impact of home reversion regulation
Mystery shops reveal issues…
…to which SHIP has responded
Signs of improvement
Equity release as a tool for inheritance tax planning?
Entry of mainstream providers into the market
Companies increasing customer base through affinity partnerships
COMPETITIVE CONTEXT
Key points summary:
Alternatives to equity release
Figure 15: Alternative sources of retirement income
Downsizing/selling property
Reliance on family assistance
Pensions
Investments in property
Figure 16: Buy-to-let mortgages outstanding, 2001-06
Other forms of equity release
STRENGTHS AND WEAKNESSES IN THE MARKET
Figure 17: Equity release market, strengths and weaknesses, 2007
Demographic and economic factors enlarge target market
Product development breathes new life into equity release
Industry develops safeguards to prevent ‘history repeating’
Legacy of past reputation still hangs over industry
Lack of advisers could hold back sales
Regulation could cause a hiccup in the home reversion market
WHO’S INNOVATING?
Key points summary:
Consumers demand increased flexibility with drawdown products
Home reversion schemes also embrace flexible options
‘Protected Share’ enables people to reduce impact on inheritances
Providers looking to increase access to higher LTVs
Providers begin to offer a more diverse product range
Equity release support tools drive technological advancements
Use of Internet in equity release sector growing
TRADE PERSPECTIVE
Many in industry predict modest growth over next two years
Equity release expected to develop as retirement planning option
Consumer confidence and access to advice are main barriers to growth
Government policy and attitudes towards inheritance also impact development
Future looks bright for direct sales with entrance of high street brands
Size of equity release market has deterred mainstream providers
Mainstream providers to raise consumer awareness of equity release
Lifetime mortgage regulation has deterred advisers working in sector
However, most acknowledge regulation vital for consumer confidence
Home reversion regulation welcomed as will create level playing field
Future of equity release depends on maintaining consumer confidence
MARKET SIZE AND FORECAST
Key points summary:
Value of equity release sales has faltered
Figure 18: Total value of equity release sales by SHIP members, 1991-2006
Figure 19: Number of plans in force at year end, by SHIP members, 2003-06
Popularity of drawdown mortgages provides a boost for market…
Figure 20: Number of drawdown mortgage plans sold by SHIP members, quarterly 2005-06
…but results in lower loan amounts
Figure 21: Newly advanced lifetime mortgages, by number, value and average amount of advance, 2002-06
Institute of Actuaries looking for growth in the sector
Steady growth forecast
Figure 22: Forecast of total value of equity release sales by SHIP members, by product type, 2006-12
Factors used in the forecast
MARKET SEGMENTATION
Lifetime mortgages continue to dominate equity release sales
Figure 23: Value of equity release sales by SHIP members, by type of equity release scheme, 1991-2006
Some sign of a revival in the reversion sector
Figure 24: Total value of equity release sales by SHIP members, by product type, 1996-2006
Number of plans sold increases by 14% in 2006
Figure 25: Number of equity release plans sold by SHIP members, 1997-2006
MARKET SHARE
Key points summary:
Equity release dominated by three major providers
Figure 26: Estimated equity release market share, 2006
Norwich Union looks to intermediary sector for boost
Companies explore new strategies to develop market share
IFAs choose Northern Rock as preferred lender
Concerns expressed over dominance of Key Retirement Solutions
COMPANIES AND PRODUCTS
Key points summary:
Bridgewater Equity Release Limited
Bristol & West Mortgages
Ecclesiastical Life Limited
GE Life Limited – recently rebranded as Tomorrow
Hodge Equity Release
Home & Capital Trust Limited
In Retirement Services
Just Retirement Limited
Key Retirement Solutions
Mortgage Express
National Counties Building Society
New Life Mortgages Limited
Northern Rock plc
Norwich Union Equity Release Limited
Partnership Home Loans
Portman Building Society
Prudential
Retirement Plus Ltd
Standard Life Bank
Stonehaven
Stroud & Swindon Building Society
Other equity release providers
BRAND COMMUNICATION AND PROMOTION
Key points summary:
Advertising and promotion vital to improving consumer confidence
Advertising opportunities limited by lack of mainstream providers
£64 million spent advertising equity release schemes in the last five years
Figure 27: Advertising expenditure on equity release products, by organisation, 2002/03-2006/07
Norwich Union accounts for almost half of total advertising spend
Figure 28: Advertising expenditure on equity release products, by top ten providers in 2006/07
Direct mail is the most popular form of advertising equity release schemes
Figure 29: Percentage of advertising expenditure, by media outlet, 2006/07
CHANNELS TO MARKET
Key points summary:
Distribution patterns evolve
Over 60% of equity release sales generated from intermediary market
Figure 30: Value of equity release sales by SHIP members, by distribution channel, 2003-06
Some signs of a recovery for direct sales in equity release
Figure 31: Volume sales of equity release products from SHIP members, by distribution channel, 2003-06
FSA findings highlight need for specialist advice in equity release market
Equity release industry expresses concern over access to advice
New providers have an impact on the market
Figure 32: Distribution channels of SHIP members who provide equity release products, 2007
Adviser numbers grow but future depends on maintaining confidence
CONSUMER FINANCIAL ACTIVITY
Testing times for financial services providers
Activity levels down again
Figure 33: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2005-December 2006
UK savings and spending climate
Figure 34: UK savings and spending climate – indexed, January 2001-January 2007
Subdued picture across all sub-groups
Figure 35: Expected financial activity, by socio-demographic and income groups, December 2006 and average for the last 20 quarters
Declining business across the board
Figure 36: Leading financial activities planned in the next six months, December 2005-December 2006
Mortgage providers may have to work harder for revenue
Figure 37: Intended mortgage and property purchase activity, December 2004-December 2006
Identifying main financial services providers
Abbey customers are the most ‘fairly’ active
Figure 38: Activity levels of main financial services providers’ customer bases, December 2006
Halifax customers are savers
Figure 39: Activity intentions and current household financial situation, by MFSP, December 2006
THE CONSUMER – MORTGAGE OWNERSHIP
Key points summary:
Survey background
A quarter of consumers own their home outright
Figure 40: Housing tenure, February 2007
Implications and opportunities
Mortgage debt is being pushed later into life
Figure 41: Housing tenure, by gender, age and socio-economic group, February 2007
Figure 42: Changes in housing tenure, by age group, 2003-07
Implications and opportunities
Nearly half C2DE 55+ group could be termed equity-rich
Figure 43: Housing tenure, by lifestage, age/socio-economic group and working status, February 2007
Implications and opportunities
Highest levels of home ownership recorded in the South of England
Figure 44: Housing tenure, by gross annual household income, TV region and ACORN category, February 2007
Implications and opportunities
70% of people who shop at M&S and Waitrose are homeowners
Figure 45: Housing tenure, by newspaper readership, technology users, commercial TV viewing and supermarket usage, February 2007
Implications and opportunities
THE CONSUMER – MARKET POTENTIAL
Key points summary:
One in ten homeowners have released equity from their home
Figure 46: Willingness to release property equity, 2003-07
Implications and opportunities
People aged 25-44 most likely to have released equity
Figure 47: Willingness to release property equity, by gender, age, socio-economic group and marital status, February 2007
Implications and opportunities
20% of homeowners in ABC1 35-54 group may consider equity release
Figure 48: Willingness to release property equity, by lifestage, age/socio-economic group and working status, February 2007
Implications and opportunities
A third of homeowners in the South receptive to idea of equity release
Figure 49: Willingness to release property equity, by gross annual household income, region and ACORN category, February 2007
Implications and opportunities
Mid-market tabloid readers less likely to consider equity release
Figure 50: Willingness to release property equity, by newspaper readership, technology users, commercial TV viewing and supermarket usage, February 2007
Implications and opportunities
People who own their home outright least likely to release equity
Figure 51: Willingness to release property equity, by housing tenure, February 2007
Implications and opportunities
CHAID analysis
Figure 52: CHAID analysis on select statements relating to equity release schemes, February 2007
THE CONSUMER – ATTITUDES AND TARGETING OPPORTUNITIES
Key points summary:
Most common reason to release equity remains home improvements
Figure 53: Reasons for releasing equity, February 2007
Implications and opportunities
Younger people more likely to release equity for home improvements
Figure 54: Reasons for releasing equity, by gender, age, socio-economic group and lifestage, February 2007
Implications and opportunities
People looking to release equity for retirement read mid-market tabloids
Figure 55: Reasons for releasing equity, by newspaper readership, technology users, commercial TV viewing and supermarket usage, February 2007
Implications and opportunities
Repertoire analysis reveals home improvements are a key driver
Figure 56: Repertoire on Q12 main reasons for releasing or considering to release equity, February 2007
One in six homeowners view equity release as rather ‘dodgy’
Figure 57: Agreement with statements about equity release schemes, February 2007
Implications and opportunities
A quarter of homeowners over 65 decided against equity release
Figure 58: Agreement with statements about equity release schemes, by gender, age, socio-economic group and marital status, February 2007
Implications and opportunities
ABC1s most likely to seek expert financial advice
Figure 59: Agreement with statements about equity release schemes, by lifestage, age/socio-economic group and working status, February 2007
Implications and opportunities
One in five Waitrose shoppers plan to leave home as inheritance
Figure 60: Agreement with statements about equity release schemes, by newspaper readership, technology users, commercial TV viewing and supermarket usage, February 2007
Implications and opportunities
Two thirds of consumers are disinterested in equity release schemes
Seeking Expertise (15% of respondents)
Undiscerning (67% of respondents)
Low Opinion Prospects (9% of respondents)
Other Options (8% of respondents)
ABs most likely to be Seeking Expertise
Figure 61: Typologies according to attitudinal statements about equity release schemes, by gender, age, socio-economic group and lifestage, February 2007
Readers of popular tabloids most likely to be Undiscerning
Figure 62: Typologies according to attitudinal statements about equity release schemes, by newspaper readership, technology users, commercial TV viewing and supermarket usage, February 2007