The answers are more varied than you may imagine
The following article was provided by Andrea Rozario, chief corporate officer at Bower.
What do people use equity release for? It might be a simple question, but the answers are more varied than you might imagine. Despite what you might read in the mainstream press or hear on the grapevine, hardly anyone uses their equity to go on a bender or buy a speedboat. In fact, almost everyone who gets a lifetime mortgage actually uses their property wealth for level-headed, often financially smart reasons. Unfortunately, you might never hear about this. I guess it doesn’t sell papers.
So, if older homeowners aren’t pillaging their property wealth to go on a reckless retirement blowout, what are they doing? Well, according to recent analysis from Canada Life the most common reason their clients accessed their equity could hardly be classed as reckless. Over 50% of their customers in the first half of 2022 reported using a lifetime mortgage to clear existing mortgage debt. Not exactly Wolf of Wall Street stuff, is it? I mean, many may think it’s almost painfully sensible.
However, if half of customers are using their equity to consolidate their current mortgage debt, there must be a massive chunk somewhere who are going a little wild, right? Well, not really. The second largest proportion, some 38% of customers in the research, tapped into their housing wealth to, well, reinvest in their property. Again, many would argue sensible behaviour as over a third used the lifetime mortgage to pay for home improvements like conservatories, extensions, vital repairs and more, simultaneously boosting their comfort levels and likely increasing their property value. And who can blame them? We have all been cooped up in our homes for the last few years, so reinvesting in it makes perfect sense. Where is the reckless abandon we hear so much about?
What about third place? Could the bronze medal spot go to something a little more carefree? Nope, sorry. According to the data, third spot goes to ‘supporting day-to-day living costs’. Yet again arguably a good option for many with limited choices. Plus, with this brutal cost-of-living crisis rumbling on, equity release customers are turning to the property wealth they have built up over many years to see them through this difficult period. Again, where’s the recklessness? All I see is customers planning and using what options they have in what many would consider a tough environment.
Even way down in fourth spot we still don’t find any wild spending, as gifting to friends and family comes in at 15%. Surely this sort of altruism couldn’t be more different from the selfish splurging that many think people use equity release for? In truth, thousands of customers realise that they have been fortunate to benefit from decades of house price inflation and are willing to pass on this property wealth to help their kids and grandkids, usually in the form of assistance with mortgage deposits. In all honesty, our customers are often doing more to help younger people get on the property ladder than anyone in Westminster.
Although it’s clear that people use equity release for all sorts of reasons - usually rather smarter financial decisions than portrayed by mainstream media - that doesn’t mean that some people don’t use their property wealth to treat themselves. Canada Life’s research shows that around one in 10 of their clients used the money to buy a new car - certainly a luxury with the current fuel price factored in - and around 14% used some of the money they released to go on holiday. And so what? After the last few years we have all been through, who is to say that anyone doesn’t deserve a little break or luxury?
Ultimately, although some people do use equity release to treat themselves, it is almost always way down the charts for most likely reason. In reality, people are smart and they use their equity in intelligent ways. What is essential for every customer is that they are fully aware of what the plans entail and understand the impact of compound interest and the effect on property equity.
Following decades of house price inflation and seeing their investment grow, while other retirement finance vehicles like savings and pensions have dwindled, it was never likely people would simply blow through their safety net - but being fully informed is crucial.
Clearing current debts, paying for home improvements, reaching out a helping hand to younger family members, the list goes on and on. Rather than looting the family silver, older homeowners are often reinvesting their equity and helping both themselves and their families. And it is this that should be under the microscope, not silly horror stories based on a minute number of cases.
