Advisers report increasing use of equity release in retirement planning
Advisers report a “significant increase” and “need” for equity release as an option in retirement and later life planning
An increasing number of people are turning to equity release in a bid to unlock property wealth. Longer life expectancy coupled with the rising cost of retirement and increasing levels of debt has prompted growing demand for funds, and advisers expect this trend to continue.
In June last year, Legal & General announced that sales of its lifetime mortgages had surpassed its annuity sales for the first time, and according to the Equity Release Council, lending reached an all time high of over £2 billion in 2016.
Samuel Mather-Holgate, director at Mather & Murray, has been advising on equity release for over five years and says demand is on the up.
“This year has already seen a significant increase in clients discussing their options in later life with our advisers and I’m really pleased to see more providers moving into this space. As well as the welcome procurement of Newlife by Legal and General there are also lots of smaller initiative providers offering new products and it wouldn’t surprise me if more providers looked at this area.”
As a firm, Mather & Murray only discusses equity release with a client if it is something they raise, or there is a clear need for it but Mather-Holgate says the latter is becoming more frequent and expects the next five years to be dominated by this growing trend.
He says: “One of the biggest issues is that many clients who were on interest-only mortgages are coming to the end of their terms and don’t have a repayment vehicle in place. We see this impending crisis as a massive opportunity to discuss equity release with clients and prospective clients.”
According to a survey by high net worth adviser Bower Private Clients, over 55-year-olds have more wealth tied to their home than the combined value of their and their partner’s pension savings. And new research commissioned by the Equity Release Solicitors’ Alliance revealed that 12% of UK adults would definitely use equity release to finance their retirement or are likely to, while 20% would consider it.
Mather Holgate notes: “Equity release can be an amazing product in the right circumstances; if clients aren’t worried about inheritance but are struggling on a basic state pension, why not make their home work for them in retirement?”
Mark Lambert, principle at Viva Retirement Solutions, agrees that demand from clients wishing to release equity from their property has never been greater, especially for Lifetime Mortgages.
He says: “Back in 2005, when I first started advising in this area, a large proportion of people were looking to use the equity to fund things like holidays, cars and other general ‘fun money’. This has changed significantly, with many people turning to Lifetime Mortgages to pay off their existing interest-only mortgages.
“The expectation is that this growth will continue for many reasons, one being that baby boomers are reaching retirement and a large number of them still have mortgages that they can no longer extend, renew or in some cases, afford,” he adds.
Growing understanding of market
Karen Cooper, Principle Financial Adviser and equity specialist at Chadwick Financial Management, is equally optimistic about the growth of equity release and attributes demand partly to a greater understanding of how the market works.
Cooper explains: “Scaremongering has certainly been the biggest barrier, with many clients having previously been sceptical due to all the negative press. Fortunately, that has now started to dissipate, which has helped the market to grow and I fully expect that trend to continue going forwards. Equity release is so heavily regulated that clients are now much more comfortable considering it as an option.”
Cooper also cites product flexibility as another driver of demand; the market has become broader and clients have a choice of different options including interest-only, inheritance protection, downsizing protection and voluntary capital repayments on a lifetime mortgage.
“The market has been forced to move with the times because the old-fashioned products no longer tick all the boxes, while people’s knowledge and desire for flexibility has never been greater,” says Cooper.
Lambert agrees: “Once we have explained to a client how the modern Lifetime Mortgage works, we are often told it sounds too good to be true. This is largely due to the flexibility of the features within the plans and the reassurance of lifetime fixed rates of interest.”
Lambert describes the potential for Lifetime Mortgages as “almost unlimited”, using it with clients for everything from inheritance tax planning to debt consolidation, gifting money to children or grandchildren, repaying existing mortgages and home improvements.
Unsurprisingly, this growing market has prompted a rise in interest from advisers seeking to specialise. The London Institute of Banking & Finance said registrations for its Certificate in Equity Release qualification jumped by more than a quarter over the past year.
Michael Nicholls, Relationship Director at The London Institute of Banking & Finance says: “With changing demographics and a greater focus on funding later life, it is no surprise that the equity release market is undergoing something of a boom. We are glad to be supporting this growth by providing advisers with the skills and knowledge needed to raise standards and improve outcomes for consumers.”
Mark Hobbs, managing director of New Leaf Distribution, says: “Advisers who are looking to secure their future in the industry will have to move into this area of advice along with financial advice if they want to survive.”
But while equity release is gaining traction, advisers agree that the decision is one that should be very carefully considered and involve the client’s family where possible.
“It should never be assumed that because the client wants to entertain equity release they should go ahead. Full financial planning is called for,” says Hobbs.
Cooper takes a similar stance; “The range of products means there has never been a greater need for advice. While I love the product, equity release is normally used as a last resort and should only be suggested after a proper fact-finding process has taken place.
“It’s an adviser’s job to make clients aware of all the upsides and downsides and ensure that their family is involved and understands the potential erosion of the estate.”