UK property equity release market contracts

The value of the property equity release market in the UK fell by 8% in the final quarter of 2010 as weather constrained customer activity.

The view that the property market will remain flat or fall marginally in the short term due to lack of funding and the threat of increased interest rates was reflected in the figures which fell dramatically after a rise of 4% in the third quarter of the year.

Data from SHIP, the trade body for equity release providers, also showed that during the fourth quarter the market share held by the respective product types remained stable.Drawdown mortgages were stable and continued to dominate sales followed by lump sum products and reversion plans.

In addition to the type of product sales remaining relatively steady, the average amount released saw a slight drop, £46,754 in the third quarter to £45,218 in the fourth. SHIP believes that this 4% fall can be attributed to customers taking out smaller amounts due to the economic environment engendering a more cautious approach to retirement finances and the release of equity.

While intermediaries, at 81%, still account for by far the majority of equity release products sold, direct sales did increase marginally by 1% from 18% to 19% (Q4 2010) as the market worked to recover from provider withdrawals earlier in the year.

Direct sales fell by 30% from £224.76 million in 2009 to £157.97 million in 2010 as a sector which accounted for 27% of sales in the first quarter of 2009 fell to 19% of sales in the last quarter of 2010.

During 2010, the unease felt by UK consumers due to house price fluctuations, the uncertain economic climate and the withdrawal of a major direct provider had a negative impact on the value of the equity release market, the report also shows. The figures record a fall of 15% from £946 million in 2009 to £804 million in 2010.

‘We have seen the traditional festive market retraction as people take holidays and put off financial decisions until the following year. This was exacerbated this year by the extreme weather conditions which hit the housing market as a whole. The early indications suggest January is returning to more active levels,’ said Andrea Rozario, director general of SHIP.

‘In addition, the current uncertain economic climate has caused some people to put off a decision until they are more confident of what is happening. Indeed, while figures for the type of equity release plans sold remained relatively stable in the fourth quarter, the sales of drawdown mortgages increased marginally,’ he explained.

‘The general feeling of unease amongst UK consumers as well as a reduction in product providers has driven a marginal quarter on quarter decrease and year on year fall. The last few years have seen unprecedented world economic turbulence, but we are confident that as the Government and the private sector work hard to foster stability, the equity release market will follow suit,’ he continued.

‘The market and consumer fundamentals are clear for all to see. With an ageing population who are living longer but have inadequate pension provision and significant housing equity, the equity release market has huge potential to help financial advisers and customers close the retirement planning gap,’ he added.