Another year of growth for the equity release market

Intermediary sales rise 25% and strong 2008 predicted

The members of the UK equity release industry body, SHIP (Safe Home Income Plans), that represents over 90% of the equity release sector, today reports full year figures to 31 December 2007. These show further growth in Equity Release new business, a major rise in sales via intermediaries, and a sector that is well placed to prosper against the backcloth of the credit crunch affecting the mainstream mortgage market.

Overall Business Figures:

The total value of new business written for full year 2007 reached £1,210.4 million, a 5% increase on last year’s figure (FY 2006 – £1,154.3 million) and the number of new policies sold rose 5.5% from 27,772 in 2006 to 29,293 in 2007.

Sales via intermediaries rose by a significant 25%, from 14,799 in 2006 to 18,531 in 2007, while sales via directs sales forces fell from 12,973 to 10,762. SHIP believes that this reflects increasing number of intermediaries entering the sector, endorsed in the recent survey** which reported that 41% of intermediaries expect the sector to grow in 2008.

The number of drawdown schemes and home reversions sold grew strongly. Drawdown scheme numbers almost doubled year on year (FY 2006 – 6,982, FY 2007 – 13,736) as this flexible product continued to grow in popularity. The number of new home reversions products sold rose by 6%, as regulation by the FSA in April 2007 boosted confidence in the product. (FY 2006 – 1,440, FY 2007 – 1,529). Overall, the value of equity release mortgage business grew 4% from £1080.8 million (2006) to £1127.8 million (2007), while the value of home reversions grew 12% from £73.5 million to £82.6 million.

As well as consumer demand and easier access to advice, growth is also being stimulated by highly competitive interest rates, currently as low as 5.90% (headline rate, compounded yearly to give a rate of 6.06% fixed).

Against the backcloth of the credit crunch, equity release has continued to preform well. The total value of business written in Q4 was £288.9 million, 9% lower than Q4 2006 (£317.4 million). This was substantially linked to the situation surrounding one of the sector’s major players (Northern Rock) and compares to a 12% fall in gross lending by all mortgage lender from Q3 to Q4 (CML).

Andrea Rozario, Director General of SHIP, commented;

“The equity release sector is extremely well placed to develop strongly in 2008. We expect consumer demand to grow as the rising cost of living places increasing pressure on pensioners, while average pension fund size continues to fall and investment income is squeezed by the current stock market falls. In addition increasing numbers find themselves in retirement yet still servicing mortgages or other personal debt. Equity release will represent a positive financial solution to more and more people, who have unprecedented property wealth to benefit from.

“In addition, the choice of products and the competitiveness of rates has never been greater. And, against a more uncertain housing market, the value of SHIP members’ product guarantees will offer complete reassurance to equity release clients. The guarantees that customers are protected from negative equity and are able to stay in their own home should provide particular comfort.