The Rise, Fall and Rise Again of Equity Release

by Phillipa Garrat on 28 Aug, 2012

Equity release has long had a bad reputation, and perhaps quite rightly so. During the 1980s, equity release was sold to thousands of people, and due to a sharp fall in house prices, many people were left in a situation of negative equity. At the end of the policy, properties were sold and the proceeds didn’t cover the amount of the loan.

Naturally, there was public outcry and there was a huge amount of negative press surrounding the product. How could something that was so flawed be sold to so many people? Furthermore, in the mid 1990s, Shared Appreciation Mortgages (SAMs) were introduced, which dealt another heavy blow to the industry. SAMs allowed people to take interest free loans in exchange for a percentage of the growth in the property value. At the time these loans were taken, it was estimated that the percentage of growth would be around 4.5%, which seemed like a reasonable amount to pay back on the loan. However, the housing market boomed and house prices rose by around 11%, meaning the amount that was owed was totally disproportionate to the amount of the loan.

It was recognised that there needed to be tighter regulations with home equity products, and in 1991 the Safe Home Income Plans (SHIP) was formed. These plans became increasingly popular and the vast majority of the market was consumed with these plans, which largely included no negative equity guarantees – customers would never end up owing more than their home is worth.

Since the introduction of SHIP, the face of equity release has steadily improved, with the number of policies taken out having increased dramatically over the years. However, the events of the 80s and 90s left a very bitter taste in the mouth of the consumer, and it was going to take a lot more to fully recover any damage caused by the earlier catastrophes.

By 2004, the Government announced that the sale of all equity release products was to be closely monitored by the FSA. This tighter regulation would give the much-needed boost to customer confidence in equity release products, and since then, the industry has gone from strength to strength.

In May 2012, SHIP was replaced with a new governing body, known as The Equity Release Council. The aim of the Equity Release is to improve consumer confidence, make more people aware of equity release and to tightly regulate the companies that operate within the industry. In the last 12 months alone, the amount of equity released has risen by over a quarter, and this trend looks set to continue in the coming months.

Although there is a still a long way to fully restore faith in the consumer, equity release products are now more transparent than they have ever been. Consumers are made fully aware of exactly what they are getting in to, and one of The Equity Release Council’s primary objectives is to ensure that this is the case.

About the Author


Phillipa is an ex-financial adviser, who now contributes to a number of personal finance blogs.