Equity Release Activities

Objective

Our objective is to build a specialist equity release business that encompasses a full range of equity release activities in order to take advantage of the now widely predicted significant and demographically driven growth of this sector. The businesses offer services to:

• Consumers at or approaching retirement seeking financial solutions through equity release;
• Financial intermediaries requiring support in order to participate in this specialist market; and
• Investors requiring access to product and/or asset administration.

Home & Capital has an enviable pedigree in this relatively new market, as it has now been a specialist in this marketplace for over 30 years. Our objective is to build the Home & Capital brand name by establishing a leading adviser, product provider and administrator in equity release.

Performance measures

Our performance measures for our equity release activities, conducted through the Home & Capital Trust Group, are:

• Growth in the value of equity release plans arranged. This is a measure of how active the business generation activities have been, whether Home & Capital is the plan originator or not; and
• Growth in the number of plans under management for the Group and third parties. Home & Capital has built this up since its inception in 1978. Historically, the Group has been an investor in only a small proportion of the number of these plans.

Our achievements against these performance measures during the year were:

	30 April 2008	30 April 2007	Increase
Value of equity release plans arranged	£13.3m	£10.6m	+25.5%
Number of plans under management	2,028	1,826	+11.1%

 

The increase in activity was achieved in a virtually static equity release market. Annual growth in the market for the year to March 2008, measured in terms of cash drawn, was less than 1% according to Safe Home Income Plans (“SHIP”).

Market dynamic

We agree with the widely held view that, in the next few years, this market will grow significantly. This view is underpinned by a number of long-term demographic trends:

• The potential market will grow. The proportion of people aged 65 and over is projected to increase from 16% in 2006 to 22% by 2031;
• The average period in retirement will lengthen, increasing the financing requirement. Life expectancy at age 65 in the UK has reached its highest level ever for both men and women. Men aged 65 can expect to live a further 16.6 years and women a further 19.4 years if mortality rates remain the same as 2003–05;
• Pensions will be less able to meet the future financing needs of the retired. As final-salary pension schemes are phased out, under-provision for pensions by the current generation approaching retirement is expected to produce inadequate pension incomes. The membership of occupational pension schemes fell by 1m between 2004 and 2007; and
• Homeowners in retirement have an exceptionally high proportion of the wealth tied up in their homes. 80% of the over sixties are homeowners, with average equity in their properties of £265,000.

These factors will combine to increase the demand for equity solutions to contribute to the increasing needs of a rising population of retired people.

The Institute of Actuaries has predicted that the equity release market will grow from the current £1.2bn per annum to £2bn by 2010. We now see the drivers of growth converging far more rapidly due to the credit crunch and the need for both financial intermediaries and providers to look to the growing elderly market for business. With such a drastic change taking place in the market at the moment, the general feeling amongst equity release providers is that market growth may exceed these estimates.

SHIP figures recording equity release plans issued by its members show that a relatively constant annual cash sum has been drawn by planholders in each of the last five years. However, the number of new plans issued has grown by 16% between 2003 and 2007; there has been a steady increase in equity release take-up through flexible drawdown plans, which reduce the initial sums released but ensure a steady stream of future fund-raising.

Recent developments in the economy, driven by uncertainty in credit markets, are expected to be a catalyst for the next stage of market growth. Demand for equity release is intrinsically counter-cyclical; homeowners are most likely to turn to it at times of economic uncertainty and when there are fewer available alternatives. Equity release and the retirement market generally now show more
potential for growth in volumes than any other financial sector.

Home & Capital Advisers

Selling, advising and arranging equity release plans

Home & Capital Advisers has capitalised on the new requirements of the regulated market and is helping to transform and raise the profile of Home & Capital from a niche plan provider into a more significant player with a wider role in the equity release and retirement sectors.

It provides equity release advice directly to consumers and to nonspecialist financial intermediaries. This enables the Group to derive revenues from enquiries where the customer is more suited to equity release products not provided by Home & Capital, such as a lifetime mortgage. This improves our conversion rates on leads and has given the Group a new income stream from procurement and advisory fees. This development has built on the Group’s expertise and enhanced its reputation in the market.

The advisory business has performed well in its first full year of operation, increasing the value of equity release plans sold by 25.7% against a background of a broadly static market. The advisory team has been expanded so as to market its own and third party equity release plans direct to consumers and non-specialist intermediaries.

We have increased our client base through the acquisition of the equity release advisory business of Hinton & Wild (Home Plans) Limited from the Ecclesiastical Insurance Group in September 2007. Established in 1976, Hinton & Wild is the market’s longest established equity release adviser. This business has now been fully integrated with Home & Capital Advisers and the income generated from former Hinton & Wild clients has already exceeded the acquisition cost.

After less than 18 months in operation, Home & Capital Advisers has already been recognised as a leading equity release adviser. This position has been reinforced by media appearances by Home & Capital Directors on TV and radio, and via regular contributions to consumer and trade press articles. In May 2008, it was voted “Best Equity Release Adviser” by the consumer magazine What Mortgage. It is our intention to build on our growing profile and reputation to generate a significant increase in transactions arranged this year.

Home & Capital Trustee Company Ltd

Home reversion plan provider

Home & Capital Trustee Company Ltd is the regulated provider for the Group’s home reversion plans. Plans are distributed through Home & Capital Advisers and, increasingly, through other financial intermediaries.

In order to promote a larger share of business from financial intermediaries, including mortgage brokers who have been suffering in the credit crunch, several new marketing initiatives have been introduced including the appointment of a senior manager dedicated to developing this sector. As well as an increase in applications from this source, our increased profile with intermediaries is also bringing referrals to Home & Capital Advisers from intermediaries either no  wishing to handle these products or not qualified to do so.

During the year, we were pleased to win the Moneyfacts award for “Best Home Reversion Plan Provider” in an independent vote by financial intermediaries.

Following the regulation of home reversion plans in April 2007, we would now expect this sector of the market to experience a period of sustained growth, underpinned by pension shortfall and +nervousness about the housing market.

Home & Capital Trust Ltd

Equity release plan administration

Our plan administration service provides us with regular income, on a long-term basis, from annual management and realisation fees. We either charge a fee per annum, or a higher fee based on the realisation proceeds. We now manage properties with a value of over £300m for the Group and third party investors.

We believe that many of our homeowners appreciate the noninvasive nature of our biennial visits. This ensures that we are aware of many of the property issues prior to having to market the property when it falls vacant. In addition, we can help the homeowner make fundamental decisions in the event of further financial advice being required either on a move or a requirement to release further equity from the property.