Equity Release Schemes - UK - May 2015
Executive Summary
 
“The equity release market has enjoyed another successful year in 2014, and the momentum has continued into the start of 2015. All the signs suggest that equity release is becoming a more mainstream product in later-life planning, driven by a growing target demographic, underpinned by a strong property market and framed in clear regulatory conditions. This, combined with a growing shortfall in retirement savings, mean the industry will continue to expand into the next decade.”
-Sean Song, Financial Services Analyst 

The market
New equity release values grow 29% to total £1.38 billion in 2014
Following a successful 2013, the market further expanded 29% year-on-year in terms of new equity released in 2014, driven by a combination of rising house prices and greater demand for equity release products. The 2015 quarter one figure has seen record new value levels released, at a total of £325.7 million, on course to hit the Mintel estimated £1.5 billion total for 2015. By 2019, total value of new plans is expected to reach over £2.3 billion.

FIGURE 1: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
  
Source: Equity Release Council/ Mintel

Volumes of plans sold increases 13% in 2014
21,336 plans were sold in 2014, a 13% increase on 2013. The increase in volume sold outpaced the growth in the previous year of 6%, and is forecasted to grow at a similar pace again in 2015 to total roughly 24,228 plans. Mintel’s central forecast predicts volume sales to rise to over 37,000 new plans in the year 2019.

FIGURE 2: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
  
Source: Equity Release Council/ Mintel

There is a growing number of home-owners over the age of 55
The potential target market is large and set to grow. There are 4.5 million home-owners aged over 65 and a further 1.7 million home owners between the age of 55 and 64-years-old. A good portion of owner-occupiers who are buying on a mortgage will also contribute to demand of equity release products; home-owners with an outstanding interest-only mortgage may see equity release as an option.

The improved longevity of British people will also be a long-term market driver. At the moment there are roughly 18.7 million people over the age of 55, within 10 years, there will be 22.6 million. People living longer will fuel discussion about later-life planning and the importance of being financially prepared going into retirement. 

FIGURE 3: Tenure, by age of household reference person – England, 2013/14
  
Source: Office of National Statistics/ English Housing Survey

Greater supply and demand forecasted, underpinned by consistent long-term growth in property prices
Mix-adjusted house prices increased 10% in 2014 to £265,000. From the consumer’s perspective, the greater the valuation of their property the greater the amount of potential capital there is to be raised, and thus equity release will become a more appealing proposition. Similarly, a strong property market will embolden providers to lend more in the form of a broader product range and higher loan to value ratios LTVs. 

FIGURE 4: UK mix-adjusted house prices, 1999-2014
  
Source: ONS/ Mintel

Forward-thinking approach from the FCA has paved the way for product innovation
In April 2015, the Financial Conduct Authority FCA confirmed some regulatory changes to the market, which will encourage product innovation, improve product definition clarity and generally ensure smoother conditions for advisers and providers to expand into going forward. A new additional term has been clearly defined for life-time mortgages; the ‘MCD-exempt life time mortgages’ which will fall outside the European Mortgage Credit Directive, and will allow potential new ‘hybrid’ products to be developed. These products are largely similar to standard lifetime mortgages, yet allow capital repayments to be made over the course of the mortgage. 

By including these product features into their regulatory framework clearly and well-ahead of time (hybrid products are not commonly featured on the market as of yet), the FCA has pre-empted a growth in demand in the market and ensured that regulatory conditions are sound enough to promote supply-side growth in the form of a larger and more diverse product range. 

Companies and brands
Aviva, Just Retirement and LV= expand and consolidate
The largest three lenders now account for over 90% of the market in terms of new equity released, up from the previous year of 81%. As Aviva continues to expand with the acquisition of Friends Life, the ability for the company to cross-sell products and connect with more potential customers should lead to further market gains in 2015. Just 7% of all new values of equity release mortgages are accounted for by companies outside the top three, compared with 19% in 2013. 

The combination of Equity Release Council guidelines and broader financial regulation means that the vast majority of equity release plans are sold on an advised basis, ensuring that intermediaries play a vital role in the market. Company results and Mintel’s trade research show that Key Retirement are the leading intermediary firm in the equity release market, with a market share of 35%. (Source: ERC/Key Retirement.) Age Partnership also play a major role in the intermediary sector. 

FIGURE 5: Equity release market share, by value of new sales, 2014
  
* Just Retirement's year-end is 30 June

Source: Mintel based on company annual reports

Advertising spend on equity release increases 38% over 12 months to April 2015
Nielsen Media Research data showed that spend on above-the-line consumer advertising and direct mail increased 38% in 2015 to total £5.5 million. Providers have increased their marketing efforts after a cut back the previous year, in response to increased demand for equity release products which has seen new loan values increase 29% in 2015.

Above-the-line spend only tells part of the story, however. Many of the key players in this market are investing heavily in search (both paid and natural) and other digital channels, meaning that the growth in total marketing activity over the past few years is even higher than that suggested by NMR activity. 

There has been a sharp increase in interest in equity release among 55-64-year-olds, and post-MMR changes to the mortgage market should ensure continued growth in sales to this age group. Among Baby Boomers, financial-savvy and digital awareness combine to mean that they tend to do their own research upfront, even in heavily intermediated markets. This has the potential to transform the dynamics of the equity release market, and marketing investment needs to reflect the generational shift.

The consumer
Pensions coverage is comprehensive, but pension pot size may not be sufficient
Although the overwhelming majority of consumers expect to be able to draw on the state pension, far fewer have private pension provision. The concern is that due to the modest average levels of pension pot sizes, pensioners are likely to need other additional sources of income to support life in retirement. Fortunately, 49% of home owners aged above 45 are expecting to/already have access to a non-pension income, which could be in the form of savings, investments or family inheritance.

FIGURE 6: Expected/actual retirement income sources, by tenure, February 2015
 
“Which of the following sources of income do you expect to receive when you retire? If you are already retired, which sources of income are you receiving?”

Base: 1,023 adults aged 45+
 
Source: Ipsos Mori/ Mintel

Nearly one in four over-45s only expect/have one source of retirement income
24% of people aged 45 and over only expect/have one source of retirement income; these individuals represent the most vulnerable people in the market, who may seek alternative ways to fund their later life. People within this group are more likely to be from households of below average earners (£15,000 or less), or of DE socio-economic status.

FIGURE 7: Number of different types of expected/actual retirement income sources, February 2015
 
Base: 1,023 adults aged 45+
 
Source: Ipsos Mori/Mintel

Many consumers misunderstand key product features
31% of home-owners above the age of 45 are unaware that people do not have to own their home outright in order to release equity from their property, which could lead to potential customers delaying or even shying away from releasing equity from their property, fearing that they do not qualify. 

A further 22% of consumers are unaware that portability can be a feature when releasing equity. Making this transparent with consumers would go a long way to opening up a broader market, particularly considering the increased interest from ‘younger customers’ (55-64-years-old), who may not want to be tied down to one location for the rest of their lives. 

FIGURE 8: Equity release awareness, February 2015
 
“Here is a selection of statements that some people have said about equity release schemes. Which, if any, of these do you think are true?”

Base: 795 adults aged 45+ who are buying their home or own it outright 
 
Source: Ipsos Mori/ Mintel

Over 45s who understood that equity release can go toward paying off existing mortgage debts are more likely to be open to it
Understanding equity release products fully has a positive impact on the likeliness to apply for equity release, as 12% of owner-occupiers may consider releasing equity (see Likeliness to apply for Equity Release section for more details). However, that figure grows to nearly one in five (19%) when looking at owner-occupiers who understand that you may use equity release as a way to pay off existing mortgage debts on the property that you are releasing on.

Making it clear that equity release products are available to people who are close to paying off their existing mortgage will broaden the prospective market for providers, particularly given the way in which the Mortgage Market Review MMR has changed lending criteria in the mainstream mortgage market. This is particularly important at a time when industry providers are reporting more interest from ‘younger consumers’ (55-64-years-old), who are approaching the tail-end of their careers and may therefore find it hard to prove affordability if they consider traditional re-mortgaging as a means to raise capital in later life. 

44% of consumers are getting by but unable to save for luxuries, representing a large target market with high potential
Almost half of over-45s expect (or are already enjoying) a relatively comfortable retirement, but say that they do not expect to have much left once they have covered essential expenses. Paying off bills at the end of the month are unlikely to be an issue, however saving for larger purchases such as holidays or home improvement may be just out of reach for these people. The increased number of people using equity release as a means to fund a more active and enhanced lifestyle, presents providers an opportunity to open up equity release to the wider market and gradually overhaul the misperception that equity release is a last resort option.

FIGURE 9: Retirement wellbeing in retirement, February 2015 
 
“Which of these do you think will best describe your financial situation when you reach state pension age? If you have already reached state pension age, which of these best describes your current financial situation?”

Base: 1,023 adults aged 45+ 
 
Source: Ipsos Mori/ Mintel

12% of owner-occupiers would consider equity release
The scope for equity release to expand is large, as the amount of wealth locked in British properties is estimated to be over £4 trillion, with over £2.5 trillion of that belonging to over 50s. The 12% of over-45s who had heard of equity release and who would at least consider unlocking their wealth represents a significant target for equity release providers. 

FIGURE 10: Likeliness to apply for equity release, February 2015 
 
“Would you consider an equity release scheme to help fund your retirement?”

Base: 795 adults aged 45+ who are buying their home or own it outright 
 
^ Base: 456 adults aged 55+ who have heard of equity release schemes 

Source: Ipsos MORI/ Mintel

Greater appeal of equity release to those aged 45-54-years-old 
Although not being currently eligibly, 45-54-year-olds showed the most interest in equity release, with 18% being open to the idea of it. 

The MMR has made it harder for people who will be 65-70-years-old at the end of their mortgage term to apply for any kind of mortgage. Many of these people will fall into the 45-54-year-old age category, and while too young to apply right now, at the age of 55 equity release will be a serious alternative for these people. This has been evidenced by the change in the first half 2014 and second half 2014 consumer profile, which saw 55-64-year-olds account for a greater number of equity release plans. 

FIGURE 11: Likeliness to apply for equity release, by age, February 2015
 
Base: 797 owner-occupiers aged 45+
 
^ Base: 456 adults aged 55+ who have heard of equity release schemes 

Source: Ipsos MORI/ Mintel

Barriers to uptake
Mintel has identified three obstacles toward equity release product uptake: an unwillingness to eat into the value of the inheritance they hope to leave to loved ones; a concern that they would feel vulnerable or insecure; and a perception that equity release is poor value for money. 

Regarding the 27% of consumers who believe equity release is poor value for money, 2015 should go some way to addressing this perception. The market is likely to respond with more and more competitive rates, combined with repayment features which will allow customers greater control over accrued interest. A low base rate will help drive these products, which should improve the image of equity release being a poor value for money product.

FIGURE 12: Equity release attitudes, February 2015 
 
”Which of the following statements about equity release schemes, if any, do you agree with?”

Base: 795 adults aged 45+ who are buying their home or own it outright
 
^^ Base: 790 adults aged 45+ who do not currently have a scheme

Source: Ipsos MORI/Mintel