Low rates may boost equity release
Updated on 06 January 2009
Lower interest rates look set to boost the equity release market as pensioners increasingly turn to their home to fund their retirement, research has showed.
Nine out of 10 equity release providers expect the volume of new business to increase during the coming year, according to trade body Safe Home Income Plans (Ship).
Overall the market is expected to grow by £200 million during the year to be worth £1.4 billion at the end of 2009, rising to £1.7 billion in 2010.
More than two thirds of Ship's members, who represent more than 90% of the sector, expect interest rate reductions on equity release plans to be a key driver of this growth.
Falls in the returns paid on savings accounts are also likely to have an impact, as retired people are no longer able to use the interest paid on their deposits to boost their retirement income.
But continuing house price falls, as well as a lack of understanding about how equity release works, is likely to be one of the biggest challenges facing the market. Equity release enables retired homeowners to unlock money from their property without having to sell their home or move.
They can do this either by taking out a lifetime mortgage which is not repaid until they die or sell their home, or by selling a proportion of their property to a home reversion company. Draw-down plans, which enable people to borrow money as and when they need it, rather than having to take it all in one go, are expected to continue increasing in popularity, to account for 70% of the market by 2010.
But the majority of providers expect the number of home reversion schemes taken out to either fall or remain static during the first three months of the year.
Nine out of 10 equity release providers have seen an increase in the number of referrals they get from independent financial advisers, compared with only two-thirds when the same survey was carried out in 2008.
Andrea Rozario, director general of Ship, said: "The wider economic situation means that 2009 will be an unpredictable year. Many repercussions from 2008 will continue to be felt across the industry as a whole. This survey has shown that Ship members remain confident in the future of the equity release market, as they consider the long-term prospects."
These news feeds are provided by an independent third party and Channel 4 is not responsible or liable to you for the same.
