Equity release mortgages have a lot to offer

  • Describe the evolution of lifetime mortgages
  • Describe how retirement interest only mortgages work
  • List the key points about taking a mortgage in retirement
Equity release mortgages have a lot to offer

With one in five baby-boomers now a millionaire, there is a perception that the later life generation is cash rich.

Factors such as final salary pension schemes have undoubtedly helped inflate this age group’s wealth but a key driver has been the UK property price boom, meaning a large proportion of baby-boomers’ wealth is tied up in their homes.

Retirement is now lasting much longer, bringing with it the potential of higher care costs in later life. 

Not only this, but the fact the average house price in Britain has risen a massive 270 per cent in the past two decades means there is also greater pressure on the ‘Bank of Mum and Dad’ to help younger relatives get on the property ladder.

With this extra pressure on hard-earned retirement savings, unlocking tied-up capital from a home is becoming an increasingly popular financial tool.

Figures published by the Equity Release Council earlier this year show the lifetime mortgage market hit almost £4bn in 2018 – up nearly 30 per cent on the previous year.

The sector saw 46,000 new customers in 2018 – a rise of a quarter on 2017 – with 12,891 new equity release plans agreed just in the final three months of last year.

This makes the lifetime mortgage market an area that could prove beneficial for a growing proportion of a financial adviser’s client base.

Laying the foundations

Advisers play a crucial role in helping their clients prepare for retirement, including building up pension pots, securing mortgages and implementing protection policies.

But for people in later life, advisers could provide even more support by helping such clients use the wealth accumulated in their properties to help fund their lifestyles in retirement.

Life expectancy has been on the rise until very recently.

Official figures from the Office for National Statistics show life expectancy for men hit 79.2 years in 2015 to 2017 (the latest data available) and 82.9 years for women, up from around 71 and 77 respectively just since 1980 to 1982.

This means many clients will now be living longer in retirement, which means their savings will have to go further. Property wealth can provide an alternative source of income to meet the costs of modern day retirement.

A lifetime mortgage could be an option for various types of clients too, not just those struggling to fund their day-to-day expenses on their retirement income.

Some clients might be able to afford their monthly expenses but also want to free up some extra cash for home improvements or a new car. Others could need an extra injection of cash to fund a life goal, such as the trip of a lifetime.

Back to basics

A lifetime mortgage is a loan secured against a client’s home and is a type of equity release that can provide a cash lump sum or a regular income over a fixed term.