High-net-worth clients are “more comfortable” now than they have been historically to carry debts into their retirement, a Knight Frank Finance executive has said.
David Forsdyke, a former FCA employee who helped bring the Mortgage Market Review to bear, now heads up Knight Frank’s later life finance arm.
He told FTAdviser clients approaching pension age are no longer scared of debt when it comes to releasing equity from property, as the population continues to age and pension pots keep getting smaller.
“People’s attitude to their property wealth is changing,” he explained. “Generations used to see property as a separate asset which needed to be ringfenced for their children.”
Now, Forsdyke is seeing people reaching retirement “with a very different attitude”.
“They see [their property] as part of their financial make-up, rather than as an isolated asset” he explained.
“Clients are more comfortable to carry debts into retirement,” he added, pointing to the rise in popularity of equity release products - which have reached a 15-year high this year.
“People are disappointed in their pensions, so they’re looking at property assets which have grown tremendously over the last few years,” Forsdyke continued, pointing to double-digit house price growth since the pandemic began.
“We’re all living longer too, so we’ve got to find a way to make our resources last longer. A lot of people in their 80s and 90s are sitting on property which has grown in value, but their pension pots are running out and they need care.”
At Knight Frank, Forsdyke’s later life finance team advise on equity release loans averaging at around half a million, with average property values sitting around the £2m mark.
“We’re seeing wealthier homeowners using equity release in very different ways,” said Forsdyke.
“A lot of wealthier people want to re-distribute their wealth [through the product],” he explained, as opposed to using if for small home improvements.
“More savvy, wealthy homeowners realise they’ve been quite lucky with property values, and they also realise how difficult the housing market has been for the younger generations.”
This is where the inheritance tax angle comes into play, according to Forsdyke.
“If they can get money out of their estate, then they can plan better for IHT. They can use property as a way to generate income. We often talk to financial planners, who highlight the fact that a client's pension fund will be taxed differently to their property with IHT.”
Whilst a person’s pension isn't usually part of their taxable estate, property can be taxed at up to 40 per cent, meaning drawing money out of a property early can avoid some of this tax.
The decline in interest rates across all mortgage products in recent years has also benefited lifetime mortgage products.