Q: My equity release business is growing but not at the speed I hoped it would, what areas of the market are currently underserved by brokers?
A: The popularity of equity release in recent years can largely be attributed to the growing trend for retirees to use the product to bridge the pension’s gap. This has partly been driven by an increase in house values and low interest rates on savings.
As a result equity release is often viewed as a financial product for less well-off retirees. However this stereotype is being challenged by the increasing numbers of High Net Worth individuals taking out the product.
At LV= the average property value for equity release applications increased from £390k in Q1 2013 to £485k in Q1 2014. Based on Q1 average property values this represents a year-on-year increase of 24%. We have also seen the number of high-value applications (properties over £1.5m) nearly double when comparing Q1 2013 to Q1 2014. As a result the number of equity release completions at LV= over £250k has almost doubled in the past two years.
Equity release can be used by High Net Worth individuals in a number of ways to form part of a strategic retirement plan. Since July 2013, 24% of our high-value applications have been for inheritance tax and estate planning reasons. We are also seeing a significant number of applications for works on prime properties and lease extensions.
We are also seeing parents releasing equity in their home to provide their children with a house deposit. Since July 2013, LV= has seen 4% of high-value applications being used to buy property for children. We are also seeing high net individuals taking out loans to give as gifts to their family, with 24% citing this reason.
We would like to see more advisers considering equity release as an option for High Net Worth clients. Unlocking value in property enables these clients to do things that they wouldn’t be able to afford otherwise. It’s important that advisers consider equity release as part of a client’s retirement strategy, regardless of how much money they have.
Demand for equity release in general has grown considerably in recent years. Figures from the Equity Release Council show that equity release lending reached £1bn in 2013 compared with £922m in 2012. The industry also continues to innovate to bring products to the market which add value to the industry and benefit customers.
Equity release is set to play a pivotal role in the funding of retirement for all retirees and we want to see the capital people have in their property considered alongside annuities and other retirement income solutions so that they are able to properly plan for their future.