OpinionApr 10 2018

Equity release is no longer a last resort

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Equity release is no longer a last resort
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The solution to the housing crisis is simple: we need more homes.

If we’re going to address the challenges of affordability for younger generations and stop the decline in ownership, we need to get building.

But we also need to make the most of the housing stock we have. And that’s where equity release comes in.

Lifetime mortgages are a product whose time has come.

By freeing up housing wealth, they’re bringing benefits to homeowners, their families and the wider economy – to the tune of more than £7bn last year in terms of gross output, according to Legal & General’s research.

Given UK privately-owned housing is now worth over £7bn, with two thirds (63 per cent) of over 55s in the UK owning their own home outright, lifetime mortgages also have significant untapped potential. As their popularity increases, their contribution will only grow.

The value of lifetime mortgages has already doubled in the past four years, but recent research from L&G suggests that growth will continue and even accelerate.

By 2021, our analysis predicts there will be 75,000 lifetime mortgage customers, releasing an average £110,000 property wealth each - a £8.4bn market.

People are putting that money to all sorts of uses, according to our survey:

  • More than a third (36 per cent) use the money to add further value to their homes through refurbishments and renovations.
  • 17 per cent use the money to make the most of their retirement with a holiday.
  • 13 per cent draw on their equity to help with the purchase of a new car or motorbike.
  • About one in five (19 per cent) draw on equity to cover day-to-day expenses, freeing them from the worry of trying to make ends meet as living costs rise.

These findings clearly show that equity release is no longer a last resort. It’s about giving people flexibility and choice, making use of their major asset, without forcing them to sell up and move.

And it’s not just older home owners who benefit; about one in seven, or 15 per cent, looking at a lifetime mortgage are using the money to help another family member with a deposit for a new home.

We know how vital the bank of mum and dad (or grandparents) is to helping younger buyers onto the housing ladder, and our research shows that in many cases those gifts and loans are themselves backed by bricks and mortar.

Lifetime mortgages also play a wider role, though.

The spending they finance – whether on a new kitchen, a cruise or a car – supports businesses, profits and jobs in the economy. That, in turn, fuels further spending.

In fact, increased spending resulting from lifetime mortgage lending has a direct impact, with increased business for the kitchen fitter or car showroom who benefit from new orders; an indirect impact, due to increased demand from those businesses for supplies; and an induced impact, with greater employment, higher wages and ultimately increased spending by the employees at the companies benefiting.

Add it all up and every pound of housing wealth released from lifetime mortgages adds £2.40 in spending in the UK economy.

Not only that, but the funds accessed through equity release also directly or indirectly support 37,100 jobs across the UK. 

It already has a big impact, then, but it could be much bigger.

Our analysis shows almost a quarter of Britain’s homeowners are open to releasing equity from their homes – that's nearly 3.4 million households.

That could obviously have a massive impact on the economy, but it could also have a huge impact on millions of families, whether it’s enabling pensioners to make the most of retirement, easing the strain of making ends meet or helping others enjoy the benefits of home ownership.

It’s time more people were told about the tools they have to make their homes work for them.

Steve Ellis is chief executive at Legal & General Home Finance