Expert believes equity release may offer a lifeline
The question of whether older homeowners should be encouraged to downsize to free up homes for families was raised at the recent London Institute of Banking and Finance conference.
Increasing numbers of people are having to make this hard choice, as while they are asset rich, they are income poor. Given the need to release sufficient cash to make this move worthwhile, they may also find themselves priced out of their community as well as having insufficient space for family to visit.
However, one expert believes later life lending can offer them an alternative which will boost their income and allow them to undertake any essential repairs, while remaining in their home.
Driving forces behind choices
Kay Westgarth (pictured), sales director at Standard Life Home Finance, said with ‘good customer outcomes’ more important than ever under the new Consumer Duty legislation, it is important for advisers to have a clear understanding of why a customer is making the choices they are.
Westgarth added that, in turn, advisers must help customers to understand whether something like downsizing is indeed the only option. However, she said it pays to start by understanding some of the pressures that they may be facing.
“With rates rising, any older homeowners still paying off a mortgage may be facing the prospect of increased monthly repayments, making downsizing into a smaller, cheaper property a compelling option,” Westgarth said.
The predicted correction in house prices, Westgarth said, adds to this worry, as homeowners may feel that they have to move now or risk passing the ‘peak’ value of their current property.
“Compounding these issues further is the cost-of-living crisis; while older consumers do not spend as much on costs associated with employment, they spend more of their income on ‘everyday’ items such as electricity, gas and food which have all seen a substantial increase in price,” Westgarth said.
In addition, with the Office for National Statistics (ONS) predicting that the number of people over the age of 65 in the UK will increase by 3.5 million to 14.5 million between now and 2040, Westgarth said age-related and family issues can also be a factor.
“Improving accessibility in a property, whether that is through a stairlift, wet room or even ramps for a wheelchair, does not come cheap; older homeowners may also want to support their families in these tougher times, which is not always possible on a pension alone,” she said.
Reasons to stay
All of these reasons, Westgarth said, make sense but ignore the strong emotional connection that many people have with their homes.
To best serve clients, Westgarth said advisers must establish whether a customer who is asking about downsizing actually wants to move, as, for many, they may not be aware of the alternative options available.
“For example, products such as equity release enable clients to access the equity in their homes through releasing a portion as a tax-free lump sum or in regular installments, without the need to move,” Westgarth said.
She added that clients would then continue to own their home and potentially boost their income, and support their families while bills are rising. This would also, she added, help avoid the stresses of house hunting, dealing with new property chains and adjusting to new neighbourhoods.
“Not to mention, downsizing often brings costs such as real estate agent fees, legal bills and moving expenses which can diminish the anticipated financial benefits,” Westgarth said.
Financial advice remains crucial
These factors, Westgarth said, makes equity release a viable alternative to downsizing, however she added that it is important to remember the equity release market is subject to strict regulations and consumer protections, meaning this offering is not suitable for everyone.
“It can be a valuable financial tool, but as with any financial product, it is also essential to ensure that the client is well-informed and understands the process,” Westgarth said.
However, for clients who feel forced out of the homes that they love because of the current economic situation, Westgarth believes it may well be a lifeline.
Do you believe later life lending could be the key to helping older homeowners remain in their properties? Let us know in the comment section below.
