Equity release growth slows

THE boom in people releasing cash tied up in their properties slowed dramatically in 2004 as lenders struggled with new mortgage regulations.

The UK equity release industry body, SHIP, said £1.19bn worth of new business was written by its members in 2004, a 2.7% increase on the previous year.

The figure was way below the annual percentage gains experienced in both 2002 and 2001, which were worth £852m and £572m respectively.

Equity release firms came under the regulation spotlight during 2004 when the Financial Services Authority took over the policing of lifetime mortgages in October.

SHIP chairman Jon King claimed he was pleased with the numbers despite the slowdown. He said: 'Last year saw a huge change in the regulation of the mortgage industry and I had thought the figure would be lower than 2003's numbers. 'The changes to the regulations has been an enormous challenge and cost to the industry and these results confirm emphatically that equity release is now a key financial product.'

King expects the market to expand in 2005 as more High Street lenders offer equity release products. The Actuaries Profession has claimed the market could be worth £5bn within two years if major lenders vie for business.

Equity release is split into two core products ? lifetime mortgages and home reversion schemes. Under lifetime mortgages, consumers borrow a lump sum, which can be invested to provide them with an income. The loan is not repaid until they die or sell the property and interest charged on the sum borrowed is usually added to the total amount owed.

But with home reversion schemes, homeowners sell a proportion of their property to a home reversion company. They continue to live in the property until they die or it is sold, at which point the company takes its share of the proceeds. Home revision schemes are expected to come under the FSA's remit within the next two years.

SHIP said of new business written in the fourth quarter, 96.5% was for lifetime mortgages. Northern England, Yorkshire and the West Midlands experienced the strongest growth in business during the year, but the South West, South East and East Anglia saw business levels fall against 2003.