The benefits of promoting equity release
Chris Prior is manager sales and distribution at Bridgewater Equity Release
The Key Retirement Solutions Market Monitor often throws up some interesting statistics and the latest offering is no different.
While the headline figures – total value released up 12% in H1; plan sales up 3% – make for encouraging reading for the sector as a whole, it is always drilling down into other areas of the report that reveals emerging patterns and trends.
To my mind, the reasons that older homeowners choose to release equity has always been one of the most fascinating facets of such research as it shows not only the versatility of home reversion plans and lifetime mortgages but also what kind of factors have influenced the increase in their take-up.
The latest findings show that the age-old favourites of home improvements and holidays remain the most popular reason that older homeowners release equity tied up in their properties but previously less common motivators have come up fast on the tracks.
More than a fifth of equity release customers are now using some or all of the cash to clear their outstanding mortgages, a phenomenon no doubt encouraged by the fact more older homeowners are carrying home loans into retirement and the interest-only ‘time bomb’ that has garnered many column inches.
With many mortgage lenders adopting an increasingly inflexible attitude towards individuals who have yet to make significant inroads into the capital element of their home loans as they approach retirement, equity release is beginning to represent one of the few options available to older homeowners who find themselves in such a situation.
Completing the top four reasons for releasing equity is treating family and friends, a trend that proves that the older generation aren’t waiting until they pass away to gift an inheritance.
It’s not just the reasons for releasing that are changing either. Just as there are a whole variety of usages the funds drawn down can be out to, so there is no ‘typical’ equity release customer.
The KRS figures reveal 54% of those releasing funds are over 70 and 36% are single men/women.
Further investigation into the latter statistic shows that 77% more single women are releasing equity than single men, reflecting perhaps poor pension provision for females, differing attitudes to inheritance or maybe just an increased understanding of the equity release market.
What is less well documented – and not mentioned within the report – is that when using a home reversion plan as opposed to a lifetime mortgage, these singles can release extra funds of anywhere between 12% and 24% between the ages of 65 and 90.
Given lifetime mortgages have been more popular than home reversion plans to date there is a tendency to think they are the be-all and end-all of equity release but advisers need to present potential clients with both options if they are to properly assess suitability, particularly if they are able to access more funds.
As illuminating as such research is for stakeholders within the equity release sector, it is vital the findings reach as wide an audience as possible to help banish misconceptions about the plans.
Just as there is no typical mortgage borrower, so to all potential equity release customers have slightly different circumstances and the more we can learn and publicise the reasons for releasing, the better equipped we will be as an industry to identify those who could benefit from equity release.