The mood change amongst older homeowners
Peter Welch is head of sales and distribution at Bridgewater Equity Release
Anyone who has read any of my previous columns will know that one of my main career objectives is to have the full usefulness of equity release products recognised and supported by those in the corridors of power, from Westminster to Canary Wharf and throughout the country.
I was therefore heartened to hear the Financial Services Authority’s Martin Wheatley acknowledge the role that equity release has to play in funding long-term care at an Age UK conference recently. It wasn’t just his backing that was encouraging however, but the fact that he touched on a mood change amongst older homeowners that we are certainly witnessing here at Bridgewater.
Wheatley, managing director of the FSA’s consumer and markets business unit told delegates: “There is clearly a huge amount of capital built up in homes and we do not all need to leave large legacies to children who have already grown up and have a home themselves.
“We may have moved beyond the age of leaving a home intact and debt-free to the next generation. The challenge now is how people can utilise the value that has been built up to pay for what is becoming an increasing problem of caring for an ever-longer old age.”
This sentiment shift is a message we have been trying to get across to advisers and key stakeholders in equity release for a while now, so it is great to hear someone prominent at the FSA champion the cause.
What is important to remember is that baby boomers heading into retirement now have experienced house price growth at a rate that is unlikely ever to be repeated over the lifetime of any generation to follow.
This means they have a fair amount of capital tied up in their homes and there seems to be a growing realisation this can be used for a variety of reasons, whether it be to clear or meet existing debts or repayments, as a source of income in retirement or for meeting care or medical expenses.
Hopefully statements such as Wheatley’s can help us move away from the mindset that equity release somehow involves people “losing” the value of their properties and towards a more appropriate premise that those who use the products are simply utilising the financial (and asset) options open to them.
No-one bats an eyelid when people use credit cards or overdrafts these days as it is such a common practice, yet using your property as a cash-generative asset still seems to have a certain taboo attached to it for some unknown reason.
As older homeowners become more comfortable with the fact they are not obliged to leave an inheritance and plan to access the cash from their home over their remaining years, then the particular type of equity release product used may start to shift too.
Home reversions are likely to increase in popularity as they typically give users the ability to withdraw maximum cash over their life, whereas lifetime mortgages carry the risk of leaving customers “cash trapped” – having plenty of equity but not being able to access it as they have already reached their maximum loan to value amount.
This need for cash – alongside stagnating house prices and increased life expectancies – is likely to cause a flight to reversions to meet older homeowners’ financial needs in retirement.
While we are certainly seeing a softening of attitudes towards equity release and a gradual acceptance of its versatility, the industry needs to keep working hard to ensure it is more than just a temporary mood shift.
It will need more than just a few comments from a regulatory heavyweight to get the public fully onside but every little helps and Wheatley’s observations are certainly a sign we are heading in the right direction.