I was thrilled to read the members of the House of Lords report which highlighted the pivotal role housing equity can play in helping both the government and wider society to face the challenges of supporting our ageing population.
To see the equity release industry’s views mirrored by key policy makers, it felt as though we had crossed the Rubicon and arrived at a point where equity release had finally become a mainstream financial product.
Last year saw a 10% increase in the number of equity release plans sold and the industry expects the demand for equity release to continue to grow.
Unfortunately, it is clear that the industry’s not quite there yet. Whilst the general consensus is that housing equity could hold the key, the industry has faced backlash in regards to the interest rates offered.
It would be remiss of me to ignore the issue of the cost of equity release products but, when addressing this issue, it is important to look at the propositions available.
Products from provider members of the Equity Release Council offer numerous safeguards, including a no negative equity guarantee and a promise that clients can remain in their homes until they die.
The rates on these loans are fixed which gives clients certainty as to how much they will owe. The cost of providing features such as these which significantly reduce the risk for customers have to be factored in.
To compare equity release with standard variable mortgages is like comparing apples and oranges. Equity release products don’t carry the same repossession risk for customers, nor are standard mortgage lenders exposed to the same dilapidation risk.
The market continues to innovate, and for those retirees who can afford to service their loan, and are concerned about interest rolling up, the advent of serviced mortgages has been a welcome addition and this is a space where we will undoubtedly see further innovation.
I wouldn’t suggest equity release products are right for everyone and, financially, downsizing may be the best option for certain people. However, most people who are currently using an equity release product don’t live in large homes they could give up.
In fact, a move to a retirement complex or ‘sheltered accommodation’ would prove to be a sideways move or even a trade up for a significant percentage of our borrowers.
Equity release can allow people to access a quality retirement property that trading down would not support. Whilst I’m wary of making predictions I am very happy to venture we will see a significant increase in people downsizing then subsequently using equity release further on into retirement.
What is always true is that it is crucial retirees use a solution that best suits their needs which is why we believe advice to be so important. And, the earlier in the retirement journey a client looks at how and when they might want to access that equity the better the decision they will make.
