Equity ReleaseMay 1 2018

Retirees ready to release the pounds

  • Understand the reasons behind the growth in equity release
  • Learn about how equity release can benefit clients
  • Gain an understanding of the relationship between equity release and pensions
  • Understand the reasons behind the growth in equity release
  • Learn about how equity release can benefit clients
  • Gain an understanding of the relationship between equity release and pensions
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Approx.30min
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Retirees ready to release the pounds

Rather than simply a result of larger plans being taken out, a key element of the recent increase has been a sharp rise in the number of overall plans. A total of 38,955 plans compares with the 27,666 taken out in 2016. In contrast, the average loan amount has fallen, albeit only marginally, from £77,877 to £77,380. There are a number of likely factors behind this growth. Worryingly, the need for older people to borrow is likely to become more prominent as longevity increases. 

Looking ahead, there is also the related argument that future retirees are likely to be worse off than their elders due to dwindling access to defined benefit pension schemes and higher university debt. But there are also more benign reasons: homeowners wanting to pass on some of their housing wealth to their relatives, or simply seeking to improve their own property.

Perhaps the most significant motive of all is that many consumers continue to see their property as their pension. A recent slowdown in the housing market seems unlikely to change this mindset, given the years of significant price growth that have been banked by mature homeowners.

“Rather than being known as a last-resort product to deal with a debt issue, or even a lifestyle issue such as wanting to go on a cruise, it’s increasingly being seen as part of the planning for later life,” adds Mr Burrowes.

Triple task

Individuals have three main options if they wish to release equity: drawdown, lump sum and home reversion. The first two are both transacted under the banner of a lifetime mortgage. The differences between lifetime mortgages and home reversion plans are highlighted in Box 1

Most consumers (45 per cent) favoured drawdown last year, with 20 per cent choosing a lump sum. Enhanced options for those in ill-health are also available, much like with annuities, and have also proved popular. Enhanced drawdown and enhanced lump sums account for 17 and 18 per cent of business respectively.

The future of the home reversion plans – wherein a customer sacrifices a proportion of their home to the provider, rather than take out a lifetime mortgage – looks somewhat bleak. No consumers vouched for this method, down from just 0.5 per cent as of 2016.

Key Retirement’s research found home and/or garden improvements continue to be the most popular reason for releasing equity, with almost two thirds using it for this purpose.

Pension poser

In an era when the ‘freedom and choice’ reforms have boosted the attractiveness of pension saving, it seems unlikely that equity release will ever become the dominant at-retirement solution. But recent figures emphasise the role it is now playing.

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