Latest research from MINTEL highlights equity release schemes as one of the fastest-growing sectors within the financial services industry. After 11 consecutive years of growth, the equity release scheme market is now worth a considerable ?1.2 billion, with the market valued at 50 times the size it was in 1993.
According to exclusive consumer research, one in ten (11%) homeowners have released equity in their home, amounting to almost 2 million households. What is more, almost a fifth (19%) of all homeowners who have not previously released equity have said that they may do so at some point in the future.
"Current market conditions mean that the equity release sector is ripe for further growth. Rising life-expectancy, the erosion of state pension support and inadequacies in company and personal pension provision mean that many people are looking for alternative ways to fund their twilight years," comments Paul Davies, Senior Finance Analyst at MINTEL.
"On top of this many older people are becoming increasingly asset-rich but cash-poor. In other words, although they own their own home, which is often worth a considerable amount of money, they have to survive on relatively modest incomes, which means they may look to generate additional income from the home through an equity release scheme. What is more, the recent introduction of regulation within the industry is expected to ease consumer fears and reassure more cautious financial services organisations, both of which have constrained the market in the past. It is likely that all this will result in equity release schemes developing away from a niche market into a key financial planning tool in the coming years," adds Paul Davies.
Releasing the potential
Awareness of equity release schemes is extremely high, with just one in 20 (5%) homeowners admitting that they had never heard of them. However, despite the high levels of awareness, the research also found that only a relatively small minority of homeowners actually endorse the overall equity release concept, with just under one in ten (9%) adults agreeing that releasing equity in their home to provide a lump sum or income in retirement was a good idea.
"While this may not represent an overwhelming endorsement of equity release schemes, it does still suggest that a significant minority of homeowners can see the substantial benefits that these products can bring. Indeed, the research implies that around 1 million people who currently own their homes outright believe that equity release schemes are a good idea. Clearly, this represents a substantial target audience in comparison to the current size of the equity release market," comments Paul Davies.
Living off the home
While there are numerous reasons why consumers might choose to release equity, MINTEL's research finds that the most common motivation was to fund home improvements. Indeed, almost six in ten (59%) adults who had already released equity in their home had done so for this reason, while over a third (35%) of those who might release equity in the future said this would be a key driver of their decision.
Home improvement is clearly the most popular motivation for releasing equity as there is a significant jump down to the next most popular reason. Indeed, just 12% of those who have already released equity did so in order to buy a second property. Amongst those who are thinking of releasing equity, buying a second home is much more popular, with some one in five (22%) happy to consider doing this.
One of the greatest areas of potential is releasing equity to provide a regular income in retirement. As many as one in four (24%) of those who may release equity in the future would do so for this reason, compared to just 5% of those who had already released equity in the homes.
"These findings clearly imply that a significant proportion of those people who think that they might release equity in the future will be doing so in order to help fund their retirement. While homeowners have been warned not to rely on their home as the sole means of funding their twilight years, the potential income that can be generated could certainly prove to be useful in boosting a pensioner's standard of living," comments Paul Davies.
Another key marketing message that is often conveyed by equity release providers is the use of schemes to pay for long-term care or health treatment. Interestingly, however, just 1% of those who have already released equity from their property suggested that these reasons featured heavily in their decision. But amongst those who may do so in the future, this featured much higher (10%).
This Press Release relates to the following Mintel Report:
Equity Release Schemes - UK - May 2005
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