The Credit Crunch

Agenda  What is the Credit Crunch  Impact on Equity Release providers  Impact on your customers  Impact on your business  Recent innovations  Looking forward.

“The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression” BBC World News January 2008 – “IMF Global Growth Forecast Lowered”

So what is The Credit Crunch  It’s Credit and it’s Crunchy!  Debt market turmoil & eye popping losses  Markets have ‘indigestion’ after a big meal!!  Liquidity crisis  Northern Rock & Bear Stearns  Re-financing debt now extremely difficult  High risk products withdrawn  Trust in banking system broken down.

What does it mean for Providers?  Both Lifetime Mortgage and Home Reversion providers need capital  Variety of funding models  Capital requirement long term  Different risks to mortgage capital  Strength of organisation determines ability to raise funds.

Providers  Finance Ireland  Northern Rock  One new entrant – Coventry BS  Will there be more?

Impact on the customer Liquidity Lending Demand for property Confidence in property House prices

House Price inflation

Rising costs Food 15% increase over last 12 months Utilities 2 or 3 increases this year Medicines & medical costs Council tax 99% increase in last 10 years

And …. Increased numbers of retirees with credit card debts Still repaying a mortgage  50% of people in their 50s,  one in eight over 60s  4% of people aged 80 to 84 State Pension £87.30 per week Local Authority spending on Care? Driving a car?

Impact on Customers? Market jitters..... great uncertainty and insecurity Ostrich Syndrome?

Impact on Customers? The need for equity release option won’t go away Drivers for action:  Rising costs  Debts  Desired standard of living  Below inflation income increases  Reducing government help.

What could it mean for Customers? Average equity in home of over 60’s £265,000 Real impact of fall in house prices actually very little Lifetime Mortgages  Drop in LTVs (to reduce risk of negative equity)  Quicker erosion of equity Home Reversion Plans  Transfer of HPI risk to Provider  Greater certainty.

 Liquidity Crisis has had huge impact on mortgage market  Equity Release possible replacement income stream  Consistent growing demand for Equity Release products  Consistent product choice (rates not being pulled)  Possible new product innovation. Crunch Time for Advisers?

Recent Innovations  Younger lives – more providers start at 55  Norwich Union – Assisted move option  Retirement Plus – Accelerated Property Plan  Coventry BS/Godiva – ERC free LTM  More providers in Northern Ireland  Greater flexibility in drawdown products  Reductions in interest rates  Increased LTVs  Impaired products- Lifetime Mortgages - Home Reversion Plans.

Possible future product development  Smaller drawdown releases available  High street lenders  More retail offerings  Foreign property  Retirement housing  Products linked to LTC  Wealth management (IHT planning)  Pension planning  TCF – more client focus in future product development

Possible future product development Government Equity release monies exempt from means test? Partnership schemes (public & private sector) Housing LTC

Summary Drivers for equity release market  Demographics  Longevity  Adviser numbers  Access to products  Perceptions of products  Consumer attitudes  Consumer need.

Summary Provision of Equity Release largely unaffected The home is asset many have planned to use in retirement Rising costs driving needs based use of Equity Release Customers will benefit as increase in number of advisers Market drivers are coming together The Credit crunch is a catalyst.