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What Has Happened In The Equity Release Market
09/07/2010
Let's take a look at what has happened in the Equity Release market and the provider’s that are in it over the last few years. Quite a number of provider’s have exited the market. One of the most recent, being the Prudential. The latest being Stonehaven who announced in March a 'temporary withdrawal'. So why has this happened?
The UK used to be a very attractive market for equity release provider’s before house prices began to slow and reduced with the credit crunch. The reasons being, here in the UK people like to own their own homes. Currently there is estimated to be £250 billion of equity available in homes of those retiring. An increasing ageing population, of which those retiring have a lifestyle that they want to maintain. As they are living longer they want to maintain this lifestyle for longer. Only until recently have house prices kept rising.
It seems that those provider’s staying in the market have an annuity book. They match their risk with the theory that if the annuitants live too long then so will the equity release borrowers. New provider’s looking to enter into the market will have to access their long term commitment in offering equity release products. Currently the recent trend is offering drawdown products. This is where by the provider will have a cash reserve allocated next to each property, with a potential drawdown of the funds that the borrower does not have to take. This could cause problems with obtaining new funds for lending.
Another issue is as there are no interest payments made for the life of the loan, it makes it less attractive to new lenders entering as there are other investments with similar interest rates that could be seen as more attractive and return a higher interest yield.
Home Reversion funding is different in that the provider is investing in all or part of the property. And as the provider is looking for a long term return from house price increases it becomes a different risk. It could be that the pressures of securing funding for equity release mortgages might remain difficult in the short term but we could see new providers entering into the market during the end of 2010 and beyond.
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