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January 2020 | Equity Release

Alice Watson: Home finance options for ageing society

Alice Watson is head of marketing and communications at Canada Life

As we look back on the decade, I suspect that most of us are feeling older, but not all the wiser.

Calm heads and reasonable solutions are needed to help the UK cope with an aging population – waiting for the delayed social care green paper has not been an option.

With many more people expected to use their own wealth to fund later life care, home finance options can offer more immediate and accessible support. Both single-person households and landlords aged-55 and over can benefit from products that grant them certainty and flexibility for themselves and their families.   

There’s been a recent growth in single-person households, with more than one in four homes now occupied by just one person. Most of these are women, and over half of those individuals are aged over 75. Startlingly, research has found that older people who live alone are more likely to have multiple long-term health conditions. 

It’s clear then, that the burdensome costs of care will fall more heavily on some groups than others.

For over-55s who prefer to stay in their home, lifetime mortgages can offer them the means to pay for homecare visits, as well as improve the safety and comfort of their homes. 

As many single-person households will have lower retirement incomes, they will likely welcome the option to access the wealth stored in their home to pay for care. 

Ultimately, this can improve their financial well-being in retirement and give them peace of mind. 

This pressing need for greater financial support to help those who live alone is set to continue in the future too. 

Those aged 45 and over is the most populous age group for living alone, so the industry should prepare to deal with more single-person households as they reach equity release age. 

And given their different circumstances, providers should also continue to ensure that these customers are afforded the same choice and security as more traditional lifetime mortgage customers.   

The circumstances for most landlords may be different, but they too are likely to be squeezed by later life care costs. 

For landlords aged-55 and over who don’t want to spend their hard-earned savings or sell their valuable assets, buy-to-let (BTL) home finance products offer them a way to release the equity tied up in their property tax free. 

They can release between £10,000 and £750,000 from their buy-to-let (BTL), which can be used to finance potential care costs in retirement.   

Importantly, so long as landlords aged over-55 and over comply with the conditions of their loan, they will retain ownership of their BTL property. 

This cannot be understated. Recent research by Canada Life found that 15% of UK homeowners say they wouldn’t release equity from their property to fund their retirement because they don’t understand it. 

It’s incumbent on the industry to clearly communicate to landlords that their portfolio will remain intact if they use a BTL product. 

And just like lifetime mortgages, BTL options are covered by the ‘no negative equity guarantee’. This means that landlords will never owe more than their property is worth, giving them all important certainty and financial security. 

Furthermore, landlords can decide whether to take out a BTL product that allows them to make voluntary payments towards the loan, or let the interest roll-up. We know that this flexibility is much sought after by all homeowners. 

Home finance options can play an important role in helping a range of property owners aged 55 and over enjoy a more comfortable retirement. But it’s not enough for providers to develop accessible and innovative products. 

The industry must help more consumers view their wealth holistically, and trust that their property wealth can help improve their wellbeing in retirement.