Equity release plans hit record levels

Lifetime mortgage borrowing has increased over the years. In 2016, total sales reached £2.2bn, with the average value of sales measuring at £78,000.

Recent research from the Equity Release Council indicates that the value of Q3 2017 equity release activity reached £824m, up from £572m in Q3 2016. 

Approximately 18,000 new or returning equity release customers participated in the market during the third quarter of 2017. As more savers look to unlock wealth from their property, advisers will have to increase their understanding of equity release lending as part of a prudent retirement strategy.

Equity release does have a role to play in theory, it’s just whether the industry will see that it’s advantageous to innovate in that space

Paul Leandro, Barnett Waddingham

Equity release follows a generational shift

Nigel Waterson, chairman of the ERC, made the case for equity release as a means of supplementing retirement income.

“It’s not the answer for everybody, but it should be on everybody’s checklists,” he said.

Waterson listed paying off mortgages, settling debts, home improvements and helping younger family members onto the property ladder among the uses of equity release.

“People feel secure about the value of their home… I think they’re more aware of the protections surrounding equity release products,” he said.

He also noted a generational shift. “You’ve got the ration book generation, which was very keen to pass the family home down intact to the next generation, but I think that’s much less important now, and indeed much less important to the inheritor,” he said. 

“People are now inheriting in their sixties, and by that time they’ve got their own house, they’ve got their own family, they’re well set up,” he added.

The industry needs a reward for innovation

The ERC recorded a 9 percentage point consumer shift towards drawdown lifetime mortgages over lump sum lifetime mortgages or home reversion plans in Q3 2017.

The UK is not the only market where equity release has grown in popularity. Paul Leandro, who heads up Barnett Waddingham’s DC consulting team in the north and Scotland, said the practice is beginning to garner attention in Australia.

“When people come to retire, they don’t really want to downsize,” he said. “In Australia, people are income-poor but asset-rich.” Equity release is therefore becoming a proposed solution for increasing people’s income in retirement while allowing them to stay in the same house, as well as retaining some capital in their property to pass on to their children.

Stephen Lowe, group communications director at annuity provider Just, said the onus is growing on advisers to help clients exploit the value of their property.

“If you’re going to think about your role as a holistic financial planner, then increasingly, the house is being placed within that other pool of assets, and contemporary planners are starting to introduce dialogue with their clients to say, ‘We need to think about how your house and the wealth that’s stored in that house can become part of your financial plan’,” he said.

The pensions industry will have to develop a broad and sophisticated supply of equity release plans to meet rising demand, but it requires incentives for innovation, argued Leandro.

“Equity release does have a [role] to play in theory, it’s just whether the industry will see that it’s advantageous to innovate in that space,” Leandro said.

Bring more customers to the market

The rise in consumers willing to tap into their property wealth shows no signs of abating, amid soaring demand for equity release plans. Product development may well unlock an even wider consumer base.

Will Hale, chief executive of financial planning company Key Retirement, agreed with the need for further product innovation. He suggested increasing flexibility over early redemption charges, which would increase the variation of equity release plans and expand demand for the product. He also called for a rethink in the way plan providers are currently funded.

“Equity release plans have been funded by life companies with annuity books. The nature of that funding source has really necessitated the structure of some of those products,” Hale said.

“If we can break that link between annuity providers’ funding and the equity release products then I think we can get a range of products that meet a different set of customer demands and bring new sets of customers into the market.”