The evolution of the equity release market has experienced a few hiccups along the way but has now reached a situation where everything is pointing towards a growing marketplace.
The setbacks with equity release began in the 1980’s with Home Income Plans and the mis-selling debacle. SHIP came along to clean things up, but the reputation was tarnished amongst the public and mostly the industry. Regulation in the early naughties gave credence to the sector which began to accelerate with more lenders entering the arena. The financial crash put paid to that in 2008, and the marketplace only matured in 2014 onwards with many more providers coming on stream, particularly life assurance firms with their expertise in underwriting, life expectancy and risk assessment. Coupled with their enormous pension funds seeking a safe harbour to invest in.
The later life marketplace, which it is now known as comprises non-equity release products as well – later terms on mortgages, retirement interest-only products, second charge lending to the elderly – have pushed the size of the market even further.
Arguably, pensions freedom in 2015 have augmented things, and SHIP metamorphosing into the Equity Release Council with more members, and a tighter set of principles have only helped to crystalize the bazaar.
How large and mature is it? According to figures from Legal and General Home Finance:
- 3 million people are aged over 60 in the UK
- 83% of these people own property outright
- Total housing stock equates to £4 trillion of which the over 60’s are sitting on £1.2 Trillion alone. Interestingly of the over 60’s, 47% of their asset wealth is in property – locked away as equity in the firm of bricks, mortar and slate tiles. They are beginning to regard this as a bank account or a pension to dip into – tax-free as well.
- Further fueled by lack of income. The average annual pension income for a single pensioner is just over £10,500 each year, and a fair proportion still have unsecured debt. There are over 2 million interest-only mortgages outstanding so plenty of people who won’t be paying of their mortgage soon.
- Low-interest rates are here to stay, so fixing your mortgage at, say 4%, won’t double the outstanding debt until years have passed. This uses the famous rule of 72. 72 divided by 4 equals 18 years.