Innovation is key
Equity release investments have had a difficult journey from the late 1980s, but thanks to the efforts of Ship the sector has sought to rebuild its reputation, culminating in the launch of the Equity Release Council into the mainstream
It has taken more than a quarter of a century to get there but I think we are about to see the equity release industry finally come of age. It has been a difficult and often tumultuous pubescence but the industry may actually be better for learning from the trials and tribulations that scarred its early years.
Last week, I attended the official launch of the Equity Release Council on the top floor of law firm Eversheds’ smart offices in London with stunning views of St Paul’s and the Shard building.
It was an impressive event as Nigel Waterson, former shadow pensions minister and Chris Pond, a former MP and regulator, argued the case – pretty convincingly - for a more inclusive trade association that will attempt to make equity release the mainstream financial product it has never been.
Of course, fine words (especially from two former politicians) count for nothing but the vibe around the room was a good one. This really could be the time for equity release to seize the moment and provide a financial solution to an ageing population that is essentially cash poor, debt laden but equity rich.
Indeed, according to Aviva, there is £1.9 trillion of housing equity held by the over 55s. Furthermore, 84 per cent of people in their 60s and 70s own their own home and most have at least £200,000 of wealth locked up in their property. In other words, there is a lot of equity that could potentially be released to meet a mix of needs, ranging from pleasure and leisure (cruises, new cars) through to long-term care costs.
Although a little coy about forecasting, the Equity Release Council believes that a £1bn a year market could triple in size in the next three to four years, provided the winds blow in the industry’s favour.
The Equity Release Council is the son of Safe Home Income Plans, the latter an organisation set up in 1991 to reinvent an industry marred until then by the horrible blight called investment bond-based equity release (think nasty Fisher Prew, think stupid West Bromwich Building Society).
Ship established a base from which the equity release market could rebuild its reputation. This was done essentially through the setting up of a code that gave consumers some reassurances about what they were getting into. Key was the guarantee that a borrower could never see their lifetime mortgage roll up sufficient interest to tip them into negative equity.
It has been a difficult journey for Ship. It has had to restore the sector’s reputation and despite all its good work there remains a trust issue. Many elderly people (even my parents) still do not really understand how equity release works and fear that they will be thrown out of their homes once their loved one dies.
In recent years, despite the magnificent leadership shown by Ship director general Andrea Rozario, the equity release sector has also been hit by fallout from the 2008 financial crisis. Some lenders – the likes of Coventry and National Counties building societies – have simply withdrawn from the market while others have failed to find funding. Coupled with the withdrawal of the mighty Pru from the market (presumably to concentrate on all things pointing east), it has left the market somewhat underfunded with only Aviva really waving the flag.