Study finds lifetime mortgages are slowing |
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Wed, 10 Aug 2005 16:05
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LONDON: Interest in lifetime mortgages is waning, according to a study by the Council of Mortgage Lenders. A total of 492 million dollars were lent in the six months ending June, which represents the weakest increase since the second half of 2002, the study said adding on a quarterly basis, the amount lent was 252 million pounds, 11 million pounds more than the first three months of the year but significantly weaker than the same period last year.
This is indicative of the caution shown by lenders and consumers, says the Council's senior policy adviser Jackie Bennett. The Council, however, feel there is considerable growth potential for the market with lifetime mortgages representing just 0.5 per cent of outstanding mortgage values.
The Council says there is, however, a slowing down in the demand from pensioners as a total of 10,800 people took lifetime mortgages (worth 492 million pounds) during January-June, while in the previous six months, 15,000 people took loans (worth 693 million pounds).
The new rules governing equity release could be one of the reasons, it feels. Lifetime mortgages have been brought under the regulation of the Financial Services Authority in October last year and the government is planning to bring in home reversion plans too under the FSA as soon as possible and a legislation in this regard will be in place early next year.
With lifetime mortgages, pensioners can take a loan secured against their property and receive a cash sum or regular income while the loan capital and interest roll up until their death or their move into residential care. Under the home reversion schemes, an elderly person is allowed to sell part or all of his home to a company in exchange for a lump sum and a free lifetime tenancy. This segment constitutes 5 per cent of the equity release market.
The equity release market per se has grown in the last decade. It was worth 50 million pounds in 1995, whereas in 2004, there has been a recorded 1.2 billion worth of sales.
The Council feels that another reason is the switch from traditional schemes where the value of equity being released was paid out in one go to more flexible ones which pay out only part of the available money initially, which reduces the impact on the figures. Seasonal factors and a slow down in house price growth could also be the reasons restricting borrowers in unlocking the equity in their property.
The market could grow to 5 billion pounds by end-2006, claimed Actuaries Profession recently, if major lenders join the business. At the moment, Abbey and Norwich Union offer equity release products of major lenders.
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