Chris Prior is business development manager at Bridgewater Equity Release
Equity release may sometimes unfairly be stereotyped as having a small number of uses, but our latest analysis shows that the things equity release are used for are much more than first assumed.
Perhaps most interestingly, while traditionally popular usages remain most common, there has also been a huge increase in previously niche reasons.
It will come as no surprise to learn that repaying the mortgage, home improvements and debt considerations dominate proceedings, but two other reasons for releasing equity have more than doubled in the past year.
The first of these is gifting money to children and grandchildren and the second is using the funds to supplement one’s income and maintain the lifestyle to which they are accustomed.
Both these usages have more than doubled from just over 5% to in excess of 12% from 2010/11 to 2011/12.This is undoubtedly a reflection of the austere economic conditions we continue to operate under, with an increasing number of older homeowners accessing equity in order to cope with everyday expenses rather than to fund larger purchases.
As attitudes towards inheritance continue to shift and first-time buyer conditions remain somewhat unpalatable, there has also been a marked increase in withdrawals from the Bank of Gran and Granddad.
Whereas once potential homeowners would have turned to parents for financial assistance, this help now seems to be increasingly skipping a generation.
The percentage of older homeowners earmarking released equity for long-term care needs has also shown a modest increase over the past few years, but this proportion will most likely be bolstered once the full implications of the Dilnot Commission’s plans are fully recognised.
Other reasons for releasing equity which have increased since 2010 include funding divorce settlements and establishing ‘rainy day’ funds to protect against unforeseen circumstances.
Repaying the mortgage and home improvements remain the most popular two uses of funds released by home reversions – the equity release product – but as other motivations become increasingly common they don’t account for the same proportion of cases as they once did.
Other justifications given by equity release users include travel, car purchases and moving home, showing just how versatile home reversion plans can be.
All this goes to show that it doesn’t pay to pigeonhole equity release and homeowners shouldn’t feel excluded from the market if the reason they want to access capital is unconventional.
The chances are that the provider will have dealt with a similar request before and we recently completed an application where the individual concerned intended to purchase a boat.
Those who have simpler reasons for releasing some of the equity they have established in their homes can rest assured that they are not alone in using the funds to keep the wolf from the door.
It is important that advisers not only realise the full potential of equity release and the myriad ways it can be put to use, but also suggest it as an option to their customers who find themselves in any of the aforementioned situations and are looking for a boost to their finances.