CML: Equity release has underperformed to date

Monday, 17 March 2008 2:56 PM

New research from the Council of Mortgages Lenders (CML), examining the UK's equity release market, has found the sector has "under-performed to date".

The CML argues that while fundamentals for the development of the market, such as growth in housing wealth, an aging population and potential pension shortfalls, mean there is huge potential for the UK equity release market, this has so far remained untapped.

In comparison, global markets have seen a much stronger uptake in equity release products, with homeowners in Australia, New Zealand and the USA - all of which have the same underlying fundamentals - quicker than the UK to consider equity release.

For example, the CML finds research from Australia demonstrates changing consumer attitudes to equity release - with younger households more comfortable drawing on their housing assets and less worried about inheritance - have contributed to its development.

Furthermore, in the US, the government has played a key role in developing the market by guaranteeing lenders against any loss through some equity release products.

This, however, has not been the case in the UK.

The CML finds the UK market is restrained by a number of factors including:

• The government's view equity release has limited relevance as it cannot help the poorest
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• The negative press coverage on past difficulties in the market
• The view equity release carries a reputational risk which deters some larger lenders from the market

However, Andrea Rozario, director general of Safe Home Income Plans (Ship) - a body established for the protection of planholders and promotion of safe home income and equity release plans - disagrees with these assertions.

While appreciating the reasons why larger lenders are dubious of the market, Ms Rozario said these fears are unfounded.

Ship members have a high level of satisfaction with equity released products, and also benefit from a no negative equity guarantee and the offer of independent advice when selecting products, she explained - all of which should remove lenders' concerns when considering entering the market.

Furthermore, the Ship head asserted lenders are sufficiently innovative to attract further custom to the market; citing the emergence of draw down policies as an example, which have now come to be a dominate force in the equity release sector.

According to research from Ship the UK equity release market was worth around £1.2 billion in 2007 - a figure that has remained relatively stable in over the past four years.

"Looking at the wider context it is clear that equity release will continue to grow," said the reports author Peter Williams, an independent consultant and former head of the CML."

"The reality, however, is that it will grow much bigger and faster if the industry moves forward in more creative ways. Part of the task is making it clear this option is both available and attractive with known limited downsides."

"Demand for equity release products could be speeded up and extended if government played a more creative and active role around the issue of helping homeowners access the value of their homes."

The CML believe the market can only grow with a more positive stance from government and the involvement of some larger lenders - both of which could transform the market in the UK.

"The government should recognise that, given its concern to build a society in which ownership of assets is a priority, it should help create and sustain ways in which people can exploit these assets," concluded Mr Williams.

However, Ms Rozario of Ship disagrees, claiming the needs of the baby boomer generations are gradually replacing those of the generation born before the World War II.

It is thought as this generation come toward retirement the equity release market will inevitably increase.

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