Your IndustryAug 15 2016

Brexit boost to equity release

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Brexit boost to equity release

Brexit has been blamed for a light cooling of the exponential house price growth we have seen over the past few weeks but it may have a good effect on equity release over the longer-term.

John Mahon, head of equity release securitisation for Aviva, comments: “The referendum has shaken confidence but people still generally have the same assets they had before, be that housing, pensions or investments.”

Aviva’s latest Real Retirement Report revealed 25 per cent of people aged 55 and above were more concerned about their financial future, up from 19 per cent before the vote.

However, this did not seem to affect their financial decisions, with one in six – approximating to 2.12m UK households – saying they expect to borrow in retirement.

We may see more control through the UK being able to ditch unnecessary regulation and EU financial services rules, and a refocus on the UK’s needs Stuart Wilson

Nearly three in five (56 per cent) said they believed housing wealth will be needed to pay for care in later life.

Mr Mahon adds: “Even before Brexit, 16 per cent said they would expect to borrow in retirement, with more than half of these relying on this to stay in their homes.”

Dean Mirfin, technical director at Key Retirement, comments: “It is tough to see whether Brexit in itself will have a direct effect on demand for equity release.

“The greater effect is coming from the sad economic fact many people simply do not have anywhere near sufficient savings for retirement, and face difficult decisions under pension freedoms between the need for income and the need for capital.

“Most pensioners will never be able to replace capital in retirement and it is predominantly capital needs which fuel demand for equity release.”

Positive effect

Mitch Hopkinson, head of advice at deVere UK, says: “The Brexit vote outcome is good for the equity release market.

“The low interest rate environment is expected to remain with us, meaning those with a high proportion of their wealth tied up in property are more likely to consider equity release, as it will be perceived as a fair deal.”

According to Christine Newell, mortgages technical director at Paradigm Mortgage Services, Brexit will have a “positive effect” on equity release, although she warns as there is still volatility in the markets, advisers must consider all the options carefully.

For those nearer retirement age, she believes the Brexit uncertainty could mean equity release may be the only feasible option to their “cash flow needs”, so the immediate effect of the Brexit vote could mean there is an increase in business.

However, this might not be the same for those futher away from retirement, for whom the Brexit vote uncertainty might not have the same impact on their eventual pension income.

Ms Newell explains: “Clients can currently get into equity release at the age of 55 but this would still be some 12 to 15 years away from the client’s chosen or enforced retirement age.

“This means they can carry on with regular contributions to a pension scheme or regular savings plan for some time yet, which might very well weather the storm of uncertainty [caused by the Brexit vote.

“They can then take advantage of the pension freedoms when annuity rates have recovered, therefore not necessarily needing equity from a property.”

Nigel Waterson, chairman of the Equity Release Council (ERC), believes Brexit has brought too much uncertainty, meaning “some people will pause to take stock before making big decisions”.

However, Mr Waterson adds: “We expect equity release to maintain the momentum built up during the first half of 2016.

“Following decades of house price growth, for many their home is their greatest asset in retirement, particularly in a low savings rate environment.”

The ERC’s latest figures from July showed:

■ Equity release lending passed £0.5bn in the second quarter of 2016, the highest figure recorded.

■ The total lending figure for Q2 2016 was £514.4m.

■ There were more than 6,000 new plans agreed in the quarter.

■ This was up 34 per cent year-on-year from £384.3m in Q2 2015, and 58 per cent higher than two years ago when £325.6m.

Source: Equity Release Council

Regulation

Stuart Wilson, managing partner of the Later Life Academy, comments: “The problem with Brexit is 99 per cent of what is being reported is speculation.

“We may see the ability of more control through the UK being able to ditch unnecessary regulation and EU financial services rules, and a refocus on the UK’s needs.

“If so, this may help the UK equity release sector as it is quite unique compared with other countries in the EU which do not have a similar market.”

However, this is still up in the air, he says, adding: “It really is too early to tell.

“In the longer-term, the simple fact is older consumers are facing a declining pension planning horizon compared to the current generation of retirees, so housing wealth will form a bigger part of this to access funding options in retirement.”

How clients might use equity release post-Brexit

The Brexit vote may also alter the routes through which clients may head into equity release.

Stephen Lowe, group communications director at Just Retirement, says: “In the past five years, we have seen increasing numbers of people using lifetime mortgages to top up their retirement incomes.

“If the impact of the Brexit vote were to reduce existing and new retiree’s income, it is possible we will see increasing use of lifetime mortgage drawdown facilities to help people top up their retirement income.”