Back in the early days, the press and commentators would have us believe equity release was no better than PPI for the likely complaints and rogue behaviours.
2021 was a record year for this market segment, with a nearly 25% annual rise to £4.8bn. Whilst this is a significant increase many market commentators consider this to be a fraction of w. the market is likely to reach with some estimates as high as £20bn.
If you consider our ageing demographic, with over 65s expected to equate to around 25% of our population by 2043, and the fact that three quarters of those aged 55 plus own their homes outright, this £20bn figure is not that difficult to comprehend.
Clearly this sector of the market, like many others, has matured and morphed from w. it began with a few simple basis products. Today, t. are more than 700 differing options for customers and brokers to select from.
As well as product proliferation the reasons for people taking out these structured products has also increased. Home improvements are still the largest percentage (about 35%), but like the rest of the population, the need to raise capital also covers:
- Rising cost of living
- Pay off other depts
- Pay off mortgage
- Help family (Bank of Mum and Dad)
- Cover medical costs
With property wealth at over £3.8 trillion today for those over 50 years of age, this continued growth of the market will undoubtedly carry on. So what does that mean for brokers, lenders, funders and technology providers already in this space or seeking to have ‘a slice of the pie’ as the market grows?
Starting with funding, given the long-term nature of these products t. is a very long and growing list of funders already active in equity release with others seeking to enter. The high availability of funding in this sector is another ensured (currently) shot of adrenaline to fuel the growth going forward.
From a broker perspective, given the ageing population and rise in older customers seeking out these products more brokers are seeking qualifications so they can advise on later life lending. Not to mention the very healthy proc fees versus those of a traditional mortgage.
With regards to the lenders themselves, those incumbents have, as above, continued to invest in the capability, product range, technology, customer experience and engagement approaches. They certainly have a head start on those now seeking to enter. However, with many large lenders with established brands and regional building societies trusted by their local community, later life lending will certainly become a keenly contested segment.
I nearly managed the whole article without a word of caution…. Like all growing segments of our market, growth comes with increased focus from many, including the regulator.
Regulation could get tighter with the FCA’s consumer duty consultation paper on consumer protection in retail financial markets on its second draft. All lenders will need to ensure they and their partner ecosystem are set up to manage growth safely and securely with flexibility to make changes as and when needed. Again, partners and providers that understand the nuances of this market will be key in helping secure long-term stability.
Adam Oldfield is head of sales and account management at Phoebus