Eye-watering energy bills and petrol prices have grabbed the headlines, but price rises across the board have converged to pile pressure on people’s purses. Coupled with stagnant wage growth and weak investment returns, many are feeling the pinch like never before.
House price gains have been among the rare silver linings for homeowners, although aspiring first-time buyers will not welcome the extra affordability stretch as mortgage rates rise.
Last summer, the Equity Release Council’s Home Advantage study identified a £326,000 financial benefit from homeownership versus renting.
It is important to remember back beyond the past 12-24 months to understand current trends in consumer behaviour.Since then, the average UK home has once again ‘earned’ more than the typical UK employee with average gains of £32,000.
While it is tempting to see every new development through the lens of Covid and the cost of living crisis, it is equally important to remember back beyond the past 12-24 months to understand current trends in consumer behaviour.
The equity release market’s return to growth after its pandemic slump is once more breaking new ground for property wealth withdrawals and total customer numbers.
By doing so, it is resuming a climb which, during the mid to late 2010s, saw the market finally shed its 'niche' label and transition into mainstream financial conversations.
Too significant to ignore
Nearly a decade has now passed since a House of Lords select committee report, "Ready for Ageing?", argued “an effective equity release market to unlock the housing assets held by older people is important” while also observing that “some equity release schemes exist, but they are little used”.
Since then, the retirement landscape has been reshaped by pension freedoms and a modern equity release market has emerged that is better suited to today’s longer and more varied experiences of later life.
Many product features that have made lifetime mortgages into flexible financial planning tools are particularly important in the current climate. The ability to make voluntary penalty-free partial capital repayments, with no ongoing commitment or risk of repossession, is now baked into every new plan thanks to the ERC's fifth product standard, launched in March.
No area of personal finance is unaffected by the UK's current economic pressures.Customers made more than 125,000 such repayments last year, saving almost £100mn in interest costs over the next 20 years.
Cost of living pressures may impact repayment trends during 2022, but the option for customers to incrementally reduce their debts is now theirs for life.
Similarly, customers who released equity at record low interest rates will find this is a rare aspect of their household finances that is immune to rising costs.
Once equity is withdrawn, the interest rate is fixed or capped for life. As prices continue to rise across the economy, many people might wish their other financial commitments came with the same protection.
No area of personal finance is unaffected by the UK's current economic pressures, and the equity release market will need to form part of the response.
Its social importance was recently highlighted by a Legal & General report, which estimated equity release funded £3bn of spending by over-55s last year, including £1.3bn for day-to-day expenses such as food, clothes and transport.
The study also calculated that £1 in every £90 spent by retired people domestically directly resulted from releasing property wealth.
The ageing population and ongoing efforts to innovate with later-life products and advice means these numbers are likely to rise further in years to come. Cost of living pressures makes this scenario even more probable. Housing wealth is simply too significant to ignore.
Older homeowners have more reason than ever to summon all their resources for financial planning purposes. There will also be more conversations about the need to support younger family, when many are already facing unprecedented financial challenges.
Adjusting to new realities
How can we adjust to these new realities? We need to continue to ensure potential customers are well advised, and advised against the option of equity release when it is not appropriate for the long-term or when better alternatives are available.
The robust financial and legal advice process has a critical role to play, including (but not limited to) the 25 key points highlighted in the ERC's Checklist for Advisers. These help to ensure customers who proceed with equity release borrow the right amount for the right reasons.
We need to maintain past performance whereby few complaints about equity release are received by the Financial Ombudsman Service and only a small minority are upheld.
Every complaint leaves room for improvement, and there are always opportunities to do more in areas from advice and administration to product design and communication.
The Financial Conduct Authority’s consumer duty echoes the purpose that has driven 30 years of work in the equity release market to enhance customer protections and adds to the impetus for this important work to continue.
More broadly, we need to continue facing up to the challenge laid out by "Ready for Ageing?" and echoed in the Lang Cat’s recent paper, "House Rules", on the potential of the equity release market.
That report made a renewed case for many measures the ERC has championed over the years, from a collective policy approach to housing wealth across Westminster to its inclusion within Pensions Wise guidance to improve consumer awareness and education.
In many ways, the climb ahead is familiar even if the environment is one of constant change. But after a decade of progress and renewal, and with a broader base to build from, the market is better equipped to tackle the next stage of the journey towards fully joined-up retirement planning.
Jim Boyd is chief executive of the Equity Release Council
