Product development over the past few years has been dramatic to say the least, and the equity release market today is only a faint shadow of its former self. The providers who have lead the way may not have realised the real impact that they would have on the market. Northern Rock was the first to introduce the concept of drawdown to the market; whilst this innovation, in the guise which they produced, only produced a regular monthly drawdown it shaped the thinking of many of the providers offering flexible drawdown options today.
National Counties took drawdown to the next level being the first to offer the flexible options which are dominating the market today. Northern Rock, again years ago, spotted another gap in the market, which was needed for some customers, to take the lifetime mortgage market to the next level. Northern Rock was the first provider to see – and meet – the need for a way to guarantee inheritance within the property value from a lifetime mortgage. This had long since been one of the major deciding factors between a lifetime mortgage and home reversion plan.
For many years providers and advisers have looked to contrived methods for offering customers a “no early repayment charge” (ERC). This became more and more of a requirement as providers continued to expand their ERC periods amidst spates of increased competition. As rates were squeezed, ERCs began to appear which spanned beyond the typical five years. To allow providers the flexibility to reduce rates further still, the only capacity to find space was in lengthening the ERC period. Many lenders moved to extend their ERCs to, and even beyond, ten years. Today some ERCs span the entire length of the loan.
The obvious option which the equity release market needed in order to fill this final void was a straight forward, non-contrived, option. Godiva were the provider to spot this opportunity, launching in early 2008 with a single advance and drawdown plan, both carrying a no ERC option. The option is simple and does exactly what the client wants: the option to repay at any time without penalty. The cost for the privilege is a slight increase in rate, which in the early years is well worth it when compared to alternative rates inclusive of an ERC.
Given the recent developments and current position of the equity release market the question has to be, where are the gaps in the equity release market now? Watch and see – the providers are looking.
Daniel Collins writes on a number of topics on behalf of a digital marketing agency and a variety of clients. As such, this article is to be considered a professional piece with business interests in mind.
