Equity release booming amid bust?
New research from the UK's largest equity release organisation finds the market remains robust, despite concern over the health of the wider market.
However, the Bank of England recently said the market had continued a period of stark decline - so what is the truth behind the figures? Chris O'Toole investigates.
Industry finds positive signs
The quarterly market monitor from Key Retirement Solutions (KRS) finds the amount of equity released by retirees in the second quarter of 2008 was £390 million, a 13 per cent increase year-on-year.
Furthermore, the number of plans taken out in the second quarter of 2008 increased by 6.67 per cent compared to the same period the previous year, exceeding more than 8,000 plans.
"During the first quarter of 2008 we experienced a decrease in the number of plans and overall lending in the equity release market," said Dean Mirfin, business development director at KRS.
"Throughout this period however comment from providers and advisers indicated that enquiries were on the increase towards the end of the quarter.
"This has been born out in our latest market monitor: the results of an increase over quarter one were to be expected, however the result for the second quarter compared to the same period last year are most defining."
The growth of the market can be partially explained by the creation of new, increasingly flexible, products - with the drawdown sector (whereby a consumer 'draws down' the cash in stages as and when they require it) key among them.
Such products are now viewed as an "essential" element of an organisation's product portfolio, and have seen strong growth over the year to date - increasing market share from 50 to 59 per cent over the last year.
"While lending in the mainstream mortgage market continues to decline month on month, and in comparison to last year, it is good to see some positive news in the lending arena," continued Mr Mirfin.
"The figures show that demand for equity release is strong, and positively, lenders are able to lend to those who want to release money from their homes."
London and the south-east remain the strongest market for equity release products.
According to KRS some £102 million was released in the south-east during the second quarter of the year, up 22 per cent on the previous year, while London saw lending of £53 million.
However, Bank says no
However, the figures appear to contradict those of the Bank of England .
Just £5 billion was released by the equity release sector during the first quarter of 2008, accounting for 2.2 per cent of income after tax of UK residents, according to the latest figures.
This was the lowest level since the second quarter of 2001.
Yet, Safe Home Income Plans (SHIP) - the trade body for regulated Equity Release product providers - has since sought to clarify these figures further, explaining the figures are not for bespoke equity release products, but for all re-mortgages for purposes other than a new house purchase.
While acknowledging lending did slip 13 per cent in the first quarter of the year, most of the decline was attributed to the impact on consumer confidence caused by the collapse of Northern Rock and the dramatic beginnings of the credit crunch.
"Contrary to the first glance interpretations of the Bank of England's statistics published this week, we believe that the bespoke equity release market is relatively well positioned compared with the mainstream mortgage market," argued Andrea Rozario, director general of Ship.
"Longer term the outlook is positive as a the result of the fundamental drivers of Equity Release demand being very strong - including the UK's ageing population, declining pension contributions and significant personal wealth being held in equity in property."
So, it appears, while the equity release sector is slowing, it remains well ahead of the wider market.
Chris O'Toole
Comments
Newsletter sign up