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High risk products withdrawn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 carddebts

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 touse 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.