Defaqto says equity release growth will be constrained by lack of advisers

A new report from Defaqto reveals that the rapid growth of the equity release market is set to continue, driven by changing customer needs and better product design.

But a lack of qualified advisers and solicitors is constraining the sectors potential, the report adds.

Recent market predictions are for new equity release business to nearly double to 2.8bn by 2008, up from an estimated 1.4bn this year.

However, new entrants to the market could face considerable financial and reputational risks if they miscalculate their product offerings, warns the leading financial research company.

Defaqto believes that the equity release market faces three significant hurdles.

The first is that there is a requirement for good advice but a shortage of suitably qualified advisers and solicitors able to deal with these sales.

The sales process is long and requires the involvement of parties other than the provider and customer.

Actuarial tables can understate or overstate actual life experience and any increases in longevity could see providers running into financial difficulties.

David Black, head of banking at Defaqto and the reports author, says: A constant refrain from product providers is that the lack of specialist brokers and solicitors advising on equity release products is significantly constraining the market.

This shortage has been caused by a number of factors including regulation, concern over a perceived heavy-handed approach from the FSA, risks of mis-selling versus rewards and a lack of education about equity release.

According to Defaqto product design is increasingly being used to attract customers as the market becomes more competitive.

It says that over the past year providers have offered a wider range of drawdown facilities and that these are likely to become a key element of equity release products in years to come.

Black adds: In order to mitigate potential problems caused by actuarial calculations we believe that as a matter of urgency an increased number of mortality examples need to be detailed in customer illustrations. This will better inform the customer about possible outcomes.

The report states that equity release products should look to provide loan advances which more fully reflect personal circumstances of the individual based on location, occupation, gender and health rather than on the market as a whole.

Defaqto believes that innovative niche offerings such as enhanced terms for impaired life are likely to become more widespread as providers seek to win more business.