I’m a cyclist. I’m male, in my Forties and own a bike that cost more than my first car. For some people, that’s all the information they need to conclude that I am just another Bradley Wiggins wannabe who probably tears around at 40mph, running red lights and scattering old folk and toddlers in my wake. All the while not paying any “road tax”.
The reality is very different (honest!) but perceptions and myths can be hard to shift. And when you are on the wrong side of those misconceptions, it can be very frustrating.
The same is true of equity release. A piece of research more 2 life conducted recently concluded some very interesting – and contradictory – views of those in their 50s and 60s towards retirement lending.
On the one hand, a third of those over 55 now consider their property wealth to be part of their retirement financial plan and nearly two-thirds say they would welcome the ability to borrow money in retirement if they needed to.
Frustratingly, however, a sizable number of those same people say they would not consider equity release as a solution. Of those who said they would not, they cited the following reasons:
Mistrust of the products
• Over 55s: 47%
• Over 65s: 47%
High interest rates
• Over 55s: 36%
• Over 65s: 51%
Worried about inheritance
• Over 55s: 32%
• Over 65s: 41%
For those of us working and advising in this market, this makes for rather gloomy reading. We know these perceptions are wrong or at the very least out of date. For example, rates have fallen significantly in recent years and all the signs are they will continue to fall further as competition in this market increases.
Inheritance worries are also something that can be easily addressed – not only is there a ‘No Negative Equity Guarantee’ with equity release plans, many products also offer inheritance guarantee features to help protect an element of the equity in the house for inheritance purposes.
Mistrust of the products themselves is perhaps this industry’s biggest challenge. The safeguards put in place since the introduction of SHIP and more latterly the Equity Release Council make equity release arguably the most tightly controlled and regulated products in the market.
The mistrust of equity release can be traced back to pre-SHIP days of course and the mis-selling scandals of the early Home Income Plans, which still taint the memories of some of today’s retirees who perhaps had parents caught out by the products sold in the Eighties and Nineties.
However, we shouldn’t be despondent. The market indicators are positive – 2014 was a record year for equity release in terms of lending and the signs are good for a buoyant 2015, too. More and more people are turning to equity release as a solution to their borrowing needs – for example, it has been reported that applications for loans to repay Interest Only mortgage debt have tripled in the last year. With an estimated 40,000 Interest Only Mortgages due to mature between 2017 and 2032 where the borrower will be over 65, this is just one area of huge potential growth in equity release solutions.
Despite their caution, it appears that those in their 50s and 60s who are looking for lending solutions are increasingly turning to equity release, especially as conventional mortgage lending has become much harder for them to access with the introduction of tighter lending criteria and MMR legislation.
As the new pension reforms bed down, we also predict a surge in interest for equity release as consumers look to maximise the tax efficiencies now possible by deferring the encashment of a pension pot and ‘eating bricks’ instead. In the near future, we could potentially see the pension, rather than the family home, being used as an inheritance lump sum by a growing number of tax-savvy consumers, with housing equity becoming the mainstream source of retirement finance instead. Given that the over 65s in this country own around a trillion pounds of housing wealth outright, that is a significant source indeed.
Just like cycling in the UK, the equity release market feels like it is, at last, turning a significant corner – a ‘critical mass’ moment where it moves from something regarded as niche and nuanced to something mainstream. More providers are entering the market, more solutions being launched and more people than ever before seeking advice on accessing the wealth tied up in their homes. Even the language is beginning to change as clients and their advisers look across the plethora of retirement lending solutions that can range from equity release, to second charge and buy-to-let for example.
Myths and misconceptions can persist, stubbornly in some cases, but this industry has a lot to be positive about as we stand on the cusp of a once-in-a-generation revolution in retirement planning, funding and lending.
