Recent reports from Canada Life and Legal and General have both found a rise in borrowers using equity release to manage their own day-to-day costs, and more were using equity release to gift money to their family members.
Both reports posited that the rising cost of living could see more borrowers using equity release in this way and urged those considering the product to seek financial advice.
Earlier this week, inflation hit 10.1 per cent, up from 9.4 per cent in June and ahead of Bank of England predictions which said inflation would reach double figures by Q4.
According to the Office for National Statistics, 89 per cent adults in Great Britain in July reported an increase in daily expenses.
Costs are expected to continue to rise in the autumn, with the energy price cap forecast to increase by 65 per cent in October to £3,245, and food prices predicted to go up.
Samantha Bickford, mortgage and equity release specialist at Clarity Wealth, said she had seen a few clients who had released funds to make improvements to their homes, such as solar panels to lessen electricity bills, or to repay mortgages to reduce their outgoings and increase their disposable income.
She said: “I predict that over the coming months we will see more homeowners really start to feel the strain of the fuel costs and inflation, and we will see more clients borrowing to support this.
“My advice is for later life homeowners to speak with their families first, if they are struggling to live the retirement they want to live, reaching out to their families for support is the first step. Secondly, see an independent and whole of market mortgage and equity release adviser who can explore all available options including benefit assessments, to identify the best route to raise the funds required funds to support their cost of living.”
Lewis Shaw, founder and mortgage expert at Shaw Financial Services, said the UK was “inevitably going to see an explosion” of equity release applications as the nation’s state pension was one of the lowest in Europe.
“This means the only wealth many pensioners have is the rising value of the bricks and mortar they live in. So as the cost-of-living crisis deepens and thousands of interest-only mortgages mature in the next few years, the only option for many will be equity release products to support day-to-day costs,” he explained.
Martin Wade, director and owner of Access Equity Release, added that the firm was definitely seeing an increase in enquiries from people with short to medium-term concerns over affordable living.
He added that equity release could be an “affordable solution” for those whose household finances were under pressure in the right circumstances.
“Those fortunate enough to have bought their own home earlier in life and are now over 55, approaching or in retirement have put themselves in a strong position to harness that property wealth to improve quality of life.
“All homeowners are familiar with a mortgage and equity release is, at its most simplest, just another mortgage. Yes, there are different terms and yes there are different criteria but effectively, you are accessing cost-effective borrowing because the borrowing is secured against your home,” he said.
Wade continued that its advisers were having more conversations with borrowers about taking an initial lump sum and then a smaller amount three or four times a year.
He said he believed that more younger people, 55 or over, would access the equity release market to do the former and would “start to rely on the property wealth earlier in life due to financial pressures”.
“It is of course most people’s single largest source of wealth and it is time we were more open to using all of the assets we have created without those fears of guilt.”
Equity release to support day-to-day costs could carry risk
Rob Peters, principal at Simple Fast Mortgage, said the “obvious risk” with using equity release to support day-to-day living costs was that it “might not be sustainable for the rest of the borrower’s lifetime”.
“This is a key consideration that both adviser and borrowers need to weigh up. If the cash runs out and the equity release interest is eating away the value of the home, borrowers could find themselves in a worse position, than if they had selected an alternative.
“From a financial advice perspective, moving home or downsizing could be the right option for some clients in this situation, even if it’s not what they initially want. Providing sound ethical advice doesn’t always mean agreeing with what a client might want.”
Equity release ‘features and flexibilities’ help more borrowers
Jim Boyd, Equity Release Council’s CEO, said people’s motivations to use equity release were “varied” and while figures suggested more were using it to support loved ones or to meet rising costs, today’s products had more “features and flexibilities to suit a broader set of needs than ever before”.
“The introduction of the council’s fifth product standard, which guarantees customers can make penalty-free repayments, can help customers mitigate the interest on equity release. This could be a welcome option for customers given the rising cost-of-living pressures,” he said.
Boyd added that borrowers should always seek financial advice to ensure they benefit from product standards introduced but the council and it would “strongly encourage” borrowers to involve their loved ones in the process.
Will Hale, CEO of Key, said: “With the rising cost of living, it is unsurprising that customers are looking across all their assets to see how they can best meet day-to-day living costs. In this context housing equity, and therefore equity release products, has an important role to play in helping older customers manage their finances and achieve their needs and wants in retirement.”
Hale said those on low to modest incomes had been hard hit by recent price increases and pension income often did not keep pace with inflation, so older customers were really “feeling the pinch”.
“Equity release can be a good option, but it is important that customers and their advisers consider carefully both the short and longer term implications of these products. We are acutely aware that being under financial pressure can increase vulnerability, so it is vital that individual circumstances are thoroughly explored, and advice is always highly personalised.
“Ensuring customers understand all their options, including potentially discussing debt issues with a charity or another expert in this area, and encouraging family involvement through the process is all part of the value that a specialist later life lending adviser can bring to the process,” Hale explained.
