For hundreds of years an Englishman’s home has been his castle. Increasingly, with pension shortfalls and mortgage debt still to repay well into retirement being a reality for many people, it could evolve into his cash machine.
Property ownership is currently highest among people aged 55-64 at 81 per cent and, of these, most have net property wealth in excess of £125,000.
As house prices have recovered strongly in nearly all areas across the UK and while annuity and savings rates continue to languish, figures from the Equity Release Council for the first three months of 2014 revealed the largest first quarter lending total for equity release since records began in 2002.
Total lending through equity release in the first quarter of 2014 was £315.5m: an increase of 2 per cent from the final quarter of 2013 and 35 per cent year–on-year.
Nigel Waterson, chairman of the ERC, says: “For a generation who have huge amounts of wealth tied up in property but a shortage of savings to support their retirement, equity release is providing financial stability to a growing number of older homeowners.”
The need to rely on equity release has been exacerbated over the past year as mainstream mortgage lenders pulled back from both interest-only mortgage lending and lending to people past retirement age, in the wake of ever more foreboding regulatory rhetoric and ahead of tough new lending rules under the Mortgage Market Review.
Traditionally equity release was associated with home improvement projects or the pursuance of new activities and interests in later life, says Mr Waterson.
But with the MMR rules requiring lenders to crack down dramatically on affordability and much more stringent criteria restricting sources of eligible income, increasingly equity release is being used simply to pay down mortgage debt.
“We are seeing customers typically withdrawing a quarter of the total value of their property through equity release, giving them a substantial sum to help boost their income and clear existing debts,” adds Mr Waterson.
Stuart Wilson, managing partner of Gloucester-based Equity Advice and the Later Life Academy, says while his firm is seeing high demand for drawdown products, there is a definite trend towards product features that cater for older customers with more traditional mortgage products.
“With the MMR coming into effect there is a big squeeze on lending to older clients to evidence repayment plans and affordability,” he says.
This is leading clients to favour products such as those from More 2 Life’s and Stonehaven’s, he adds, where interest can be repaid so the debt does not increase. See table below for details on the plans.
|Standard maximum LTV at age:|
|Stonehaven||5.94% - 6.78%||16% - 24%||21% - 29%||26% - 34%||31% - 39%|
(Source: Key Retirement Solutions)
His firm also has access to products from Aviva and Hodge Lifetime where customers can repay capital and interest on random payments each year, up to 10 per cent of the amount borrowed.
“This fits in with a more traditional need from consumers to borrow secured monies in retirement providing them with more control,” explains Mr Wilson.