JUST GROUP PLC Annual Report and Accounts 2020
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market context continued
Suitability Review 2”). The review will focus on initial and on-going advice to consumers on taking an income in retirement. This evolving market has changed significantly following the Pension Freedom reforms and the FCA want to assess the outcomes consumers are receiving. The Governor of the Bank of England has expressed concerns that people may not have the financial resilience to withstand significant asset price volatility and the FCA has expressed concerns that people may not have sufficient sources of sustainable income. These comments and regulatory reviews shine a spotlight on the importance of securing a guaranteed income for life. LIFETIME MORTGAGES A lifetime mortgage (“LTM”) allows homeowners to borrowmoney secured against the equity in their home. The amount borrowed is repayable together with accrued interest on the death of the last remaining homeowner or their move into permanent residential care. This product can be used by retirees to supplement savings, top up retirement income or to settle any outstanding indebtedness. The typical lifetime mortgage customer is around 69 years old, has a house valued at around £275,000 and borrows 29% of the property value. People are becoming increasingly positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family. The compound annual growth rate of the lifetime mortgage market between 2011 and 2020 was 19.7% and this has attracted new providers to enter the market in the last few years. Just Group is a leading product provider of lifetime mortgages. Our HUB Financial Solutions business is a leading distribution business providing consumers with regulated advice on equity release solutions from across the market. CURRENT MARKET AND OUTLOOK Just Group expects Lifetime Mortgages to continue to provide an important, but reducing component of the investments it uses to back its Retirement Income new business liabilities. Homeowners aged over 55 are estimated to own property wealth of over £3.2tn (source: ONS). We estimate that the existing industry loan book including interest is just £31bn. Increased competition stemming from the new entrants to the marketplace has increased the availability of product variants, rising from 315 at the end of 2019 to 525 at the end of August 2020 (source: YourMortgage), in turn resulting in greater product choice and flexibility for customers. Market growth stalled in the second quarter of 2020 given the unprecedented environment resulting from the COVID-19 pandemic and the temporary closure of the housing market. Retail activity started to rebuild in the second half of 2020 as customers looked to take advantage of the broad range of competitive solutions available. Just is forecasting that the LTMmarket will grow to around £5.7bn per annum by the end of 2023, which is a compound annual growth rate of 13.6% from 2020. The primary drivers of growth are: • households wanting to top up their retirement income to improve their standard of living in later life; • an increase in the number of people with outstanding interest-only mortgages who are entering retirement and require a solution to settle the debt with the existing mortgage company; • strong demographic growth. The number of people aged 65 and over is forecast to increase from around 12 million today to over 18 million by 2040; and • an increase in new entrants who spend money on advertising which results in people becoming aware of LTMs, combined with people becoming more disposed to using some of their housing equity. In October the FCA wrote to chief executive officer’s and board directors of lifetime mortgage lenders and mortgage intermediaries. The FCA set out their view of the key risks these firms pose to their consumers or the markets in which they operate. They outlined their expectations of firms including how firms should be mitigating these key risks. They described their supervisory strategy and programme of work to ensure that firms are meeting the regulators’ expectations and that any harms and risks of harm are being remedied and/or mitigated.
ENABLING PEOPLE TO IMPROVE THEIR LATER-LIFE LIVING STANDARDS
People are becoming increasingly positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family
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