JUST GROUP PLC Annual Report and Accounts 2019
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market context continued
LIFETIME MORTGAGES Introduction
A lifetime mortgage (“LTM”) allows homeowners to borrow money 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 70 years old, has a house valued at around £200,000 and agrees a facility to borrow up to 30% of the house value. 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. The compound annual growth rate of the lifetime mortgage market between 2011 and 2019 was 22.5% 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 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 £29bn. Increased competition stemming from the new entrants to the marketplace has increased the availability of product variants, resulting in greater product choice and flexibility for customers. Despite this, market growth has stalled in 2019, driven by the uncertainty created by Brexit. Looking forward, the structural growth drivers in retirement lending remain compelling, the market remains under-penetrated and there is significant headroom for growth. Just is forecasting that the LTM market will grow to around £6.5bn per annum by the end of 2023, which is a compound annual growth rate of 13.5% from 2019. 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.
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
Continuing developments are driving growth in our addressable market: • the structural drivers of growth in the retirement income market are strong and assets accumulating in defined contribution (“DC”) pension schemes are projected to increase consistently over the next decade. This growth arises from an increase in the number of people joining workplace pension schemes as a result of the successful state auto-enrolment policy and the increase in contribution rates implemented in 2018; • growth in DC pension assets also arises as companies close down final salary or defined benefit pension schemes and offer their employees DC pensions instead; • some people are transferring out of defined benefit pension schemes into DC pension schemes to take advantage of Pension Freedoms. When transferring, many people are choosing to secure a guaranteed income for life, by using some of the transfer value to purchase an individually underwritten GIfL; and • many life and pension companies are choosing to put in place broking solutions to offer their pension savings customers access to the best individually underwritten GIfL deals in the market. Some are choosing to transfer their obligations to provide a guaranteed GIfL rate to their customers to an alternative product provider or broking solution. This grows our addressable market and provides customers with better outcomes. Our HUB group of companies is providing many of these corporate services. The number of individual retail customers transferring their pension benefits into defined contribution pensions from their final salary (defined benefit) pension has reduced significantly in 2019. This reduction follows a review and introduction of remediation measures by the FCA into the quality of advice provided to individual retail customers exploring transferring their benefits. A proportion of the proceeds from these transfers are used to secure a guaranteed income by investing in a GIfL. This reduction in activity will be a drag on the positive growth factors above.
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