PensionsAug 13 2014

Consumers still do not understand equity release: study

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Older homeowners remain unlikely to utilise equity release products to unlock value from their home in retirement, but many remain confused over how it works and common misconceptions persist, according to a new survey from Aviva.

An online survey conducted in June with 1,200 homeowners aged over-55 found that despite 39 per cent recognising the potential benefits of using their properties to release money in retirement, many are reluctant to use equity release.

Only 15 per cent of those surveyed said they would consider equity release as a way of funding their retirement, with just 4 per cent saying they have already taken out the product.

The research found that while 82 per cent of over-55s feel they have a strong overall understanding of equity release, many remain confused by how the products work.

More than a quarter said equity release involves selling their home and becoming a tenant in it until they die, a view which refers to an older version of the product that only accounts for about 1 per cent of plans currently sold.

One in five of those who have no plans to take out equity release said they fear losing their homes. Most equity release products are now sold as lifetime mortgages that allow customers to take out a loan against their property, not affecting ownership.

Nearly half said they will not dip into the value in their homes because they want to pass on their properties in full as inheritance.

The older someone gets the more likely they are to consider equity release, with 16 per cent of over-65s in the survey stating they would consider it, compared to just 12 per cent of 55-64s. Aviva noted this was consistent with the average age of its customers, which stands at 70 years.

Clive Bolton, Aviva’s managing director of retirement solutions, said: “The Budget changes announced this year will give people more freedom in how they take their retirement savings, which means they will need to plan carefully for the whole of their retirement and consider all of their assets.”

Nigel Waterson, chairman of the Equity Release Council, agreed that there are still some common misconceptions, despite the equity release market experiencing “record growth”.

He said: “Modern equity release products have a number of safeguards to ensure over-55s can use equity release safely and with complete confidence.

“For example, members of the council will always provide customers with the right to remain in their property for life, while the ‘no negative equity’ guarantee ensures they will never owe more than the value of their home. Customers can even ringfence a portion of their property to leave as inheritance.

“Through greater education and improved consumer understanding, we can challenge these misplaced fears and ensure that equity release is recognised as a valuable part of retirement planning.”