News & Articles
The Evolution of Equity Release
You may have already read our thought leadership piece from Elliot Simberg, one of our specialist advisers in equity release. He touched upon some of the most important developments taking place in the industry right now, and we’d like to explore these a little more as the industry continues to grow in order to maintain the highest level of transparency.
The Current Market
There’s no question that the market is doing well. The over-55s used equity release to withdraw around £1 billion in the first three months of 2019 and the cost of equity release has fallen with the average rate sitting below 5% for the first time.
When we consider that this industry recorded sales of £187 million for the first quarter of 2009 – just ten years ago – the pace of growth is exceptional. This progress and success have seen a new of new products and innovations come to the market in order to increase the flexibility of equity release and develop the product range to meet evolving needs.
While there is a misconception that equity release is only an option for the wealthy, the market is constantly evolving to include products to suit a range of budgets.
Among the most prominent, the London Rebuilding Society has relaunched its home improvement scheme in partnership with Legal & General Home Finance and Age Partnership to support hundreds of thousands of cash-poor over-55s. This new product allows an individual to borrow as much as they want with no upfront fees, costs or monthly repayments.
The Future Market
The fast-moving market and an increasingly diverse product range are opening up far greater scope for later life lending and allowing people to think about their assets in new ways. Not only is the range of products increasing but also the flexibility, particularly in terms of interest repayments.
The end of Q1 2019 saw over half of products allowed one-off repayments, with one in five allowing borrowers to make monthly interest repayments. This brings it closer to the style of a regular mortgage and breaks down barriers even further to bring a sense of reassurance and familiarity to potential customers.
More and more of our clients, as well as the wider market, are considering the many options provided by releasing equity in their property and how this can play a role in a wider retirement plan.
As one of the most regulated elements of financial services, equity release is slowly breaking free from past stigma to become a respected and intelligent part of retirement planning for many people who acknowledge that it lends a certain amount of freedom that they may not otherwise have enjoyed.
Sandwich Generation Struggles
With property, i.e. your own home, representing such a solid asset, this is arguably more relevant now than ever as research shows that the over-55s “sandwich generation” are under more pressure than ever.
The latest analysis from over 50s experts SunLife revealed that 51% of people in their 50s, 60s, 70s and 80s are financially supporting their children. The research also showed that more than one in 25 people aged 55 to 59 are financially supporting elderly parents.
Many are financially unprepared for such pressure and in dire need of the cash support that equity release can provide without the need to take a more drastic and perhaps unwanted measure, such as downsizing their property.
It helps clients to segment their later life planning and put down funds to cover both their own needs and those of their dependents without any additional stress. Our team at Vintage Wealth Management will often utilise cash flow forecasting to support such plans.
Traditional Equity Release Vehicles
Then we have the more traditional, yet still expanding, uses for equity release. It can be used to meet an urgent need such as for those people who need to retire earlier than planned, often due to ill health or caring responsibilities, but who still need to pay off their interest-only mortgage.
Then we have some of the most common personal uses for equity release where customers use the equity to fulfil personal ambitions such as home repairs, helping their children onto the housing ladder or downsizing their own property. The lifetime mortgage also offers an alternative to borrowers who do not want to pay stamp duty if they are thinking about downsizing.
It can also be used as a financial management tool – perhaps for topping up a pension income, gifting or to cover the increasingly high cost of care. The diversity of this product emphasises how it meets a range of very real concerns for older generations and our ageing population, primarily how to support their families, cover the cost of care and manage their inheritance tax bill, as well as fulfil personal ambitions such as taking a holiday they’ve always dreamed of.
Making the Best Choice
Releasing equity from your home is not a decision that should be taken lightly. We recommend speaking with a professional specialist adviser before making any decisions. This will help you to understand the most effective route for you to take and the potential implications of your choice.
Equity release is not for everyone and our holistic approach to financial planning gives us the insight to recommend the most effective choice. Contact our team today to find out more.
To understand the features and risks of a lifetime mortgage, contact us for a personalised illustration.
You may be subject to early-repayment charges if you want to exit the deal or pay the loan off early unless you pass away or move into care.