Experience of the equity release UK market over the past 10 years has proved a mixture of highs and lows. From its origins, there were only a few equity release lenders, such as Norwich Union, Prudential Equity Release, Hodge Equity Release, and Northern Rock and Home and Capital. Some of these equity release lifetime mortgage companies remain, albeit in their alternative brand names – Aviva and Hodge Lifetime.
Regulating the Equity Release Market
Not only has there been change with the lifetime mortgage plans, but also with their regulation. All schemes recommended should now be a member of SHIP (Safe Home Income Plans) which is a trade body established to provide consumer protection on a product that was classed as being high risk.
Additionally and more importantly, the FCA (Financial Conduct Authority, formerly the Financial Services Authority) now encompass all the lifetime mortgage and home reversion products currently available. This brings with it consumer confidence and protection which has helped allay the concern for age related products. As then this home equity release product has developed further with innovative lenders arriving on the scene. Prudential Equity Release, Stonehaven and Just Retirement have all helped bring their individual niches to market. These include the first drawdown equity release schemes, the increasing cash reserve facility and non verification interest only mortgages for pensioners.
All welcome additions and hopefully this attitude bodes well for further development in the future.
The Credit Crunch Makes an Impact
However, from a position of strength in 2008/09 with over 20 lifetime mortgage companies in the market, then the credit crunch arrived affecting the industry. The first companies hit were the banks and building society equity release providers who relied on their savers and interbank lending to finance their equity release funding. Additionally, companies like the Prudential withdrew in late 2009 with a change of attitude to their future in the UK and seeing potential profits mistakenly elsewhere. Stonehaven, originally backed by Santander, suffered from Santander’s review of their equity release UK operation and only recently have re-entered with a revised interest select equity release.
Resurgence in the Market
More recently in 2011 we have seen the re-introduction of New Life Mortgages and More2life; a company that currently offers an impaired life equity release plan for people with past and present medical conditions.
Some of the companies which have left the market returned, but there are others like Prudential who are not willing to lend to new customers. This does not mean they have taken away their products from existing customers, though. In fact, Prudential has offered existing customers an alternative in the event they need to release more funds. With the ability to refinance or release more, existing consumers can try to shore up their retirement if they have already gone through most of the funds released earlier.
The idea is that the person or persons are older so there is the life expectancy factor to increase the amount of money provided. Additionally, home values could have appreciated over the last several years, which can make it possible for more funds to be available for release. It does not work for every home, but at least there is an option.
Given that you may be more interested in starting with new products, understanding the history of the market is certainly helpful. You can see that there are more protections in place than ever before. This helps you feel comfortable when looking at products and discussing your options with an independent financial adviser. You definitely want an unbiased broker helping you. Someone tied with a company will talk about their products and only when asked discuss other possibilities without full knowledge. It may limit how competitive your product would be.
The way to get started researching is by reading articles and using calculators to determine whether equity release schemes are affordable for you. Plenty of calculators are provided via independent websites. These sites can often provide you with three or four results based on the different types of products. This way you compare and get to see if it helps you in retirement before talking with an adviser. It is a time saver and most helpful in determining what the new products on the market are.
With more UK equity release companies waiting in the wings, the future of the lifetime mortgage now seems to have stabilised again and is certainly more optimistic than 12 months ago. While some companies have not returned to the market for new customers, like Prudential equity release, at least there are some alternatives out there.