Providers mull equity release launch ahead of freedoms

Mainstream lenders are eyeing the launch - or in some cases re-launch - of equity release products ahead of new retirement freedoms coming into force in April, according to a number of industry experts and commentators.

Total value of equity release lending passed £1bn during the first nine months of this year, according to figures from the Equity Release Council published last month, a figure higher than the entire year’s lending totals for 2009 to 2012 and back to pre-recession levels.

In the third quarter alone, equity release lending totalled £375.5m, the largest amount in any single quarter since records began in 2002. The number of new customers also increased, with more than 5,500 over-55s releasing equity from their homes.

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Speaking to FTAdviser, Nigel Waterson, chairman of the Equity Release Council, said that the fastest way to grow the market is with big household names joining, adding that he welcomed “those of that calibre”.

Alice Watson, product and communications manager at Stonehaven, which itself returned to the market in 2011, said that things are competitive in the space and cited “rumours are that some mainstream lenders are considering entry into the market”.

Earlier this month Santander confirmed that an equity release lifetime mortgage is “one option we are considering for 2015” for people with interest-only propositions.

Legal and General also mentioned the possibility in its half year results, saying that in the wake of the sharp drop in annuity sales it was “assessing the viability of launching lifetime mortgages”.

Andrea Rozario, chair at Bower Retirement Services and former director general of the Equity Release Council, said that while equity release was still tiny in comparison to the wider mortgage market, there was a huge amount of scope for growth.

“There were 22 equity release providers at the market’s peak, but the likes of Coventry Building Society and Prudential began pulling out in 2009 due to the capital requirements. A return to a bigger market will bring more choice and innovation for consumers.

“The bigger lenders have been watching the market for several years, but there have been concerns about it simply being too small. This will help consumer confidence and one big entrant could convince others to join.”

Ms Rozario and Ms Watson both shared the opinion that next April’s at-retirement reforms could present an opportunity for providers and advisers alike, but only if the latter were prepared and attained the necessary specialist qualification to advise on the product.

Ms Rosario said that any good IFA should be able to present equity release as one of the variety of new options for retirees from next Spring.

Mr Waterson noted that pensions minister Steve Webb had recently conceded that housing wealth would be part of the initial checklist for the government’s ‘guidance guarantee’, saying it would be “absurd if property wealth was not part of that conversation.”

Richard Sexton, E.surv’s director of business development, told FTAdviser that it made sense that high street banks were eyeing the market given the combination of the demographic shift to older people and many lenders competing in the same “plain vanilla” mortgage lending space with increasingly tight margins.