UK retirees do not understand equity releas

A 32 page report from the provider, The Role of Housing Equity in Retirement Planning, combining 300 hours of research, found 60 per cent of retirees want reassurance that equity release products are regulated.

The study found there was an appetite for equity release but a lack of awareness among homeowners. Only 2 per cent of retirees in homes valued at £250000 to £500000 have equity release plans, but nearly a third have heard positive things about the products.

The poll also revealed that nine out of ten people cannot name an equity release provider,while four out of ten did not know where to seek advice on it.

Steve Lowe, group director of external affairs at Just Retirement said  “Increasingly the policy debate has started to focus on housing equity withdrawal as part of the solution to funding individual’s retirement needs,particularly in complex areas such as how people can pay the costs of long term care”

” From the point of view of professional advisers, there is set to be a rapidly growing demand to help these asset rich income poor consumers to find the liquidity they need to pay their day to day bills”

There is no doubt that the Equity Release market is poor at promoting itself to IFA’s and also very poor at creating awareness with the public. Hopefully this change with the formation of the Equity Release Council which must promote the industry better than its predecessor did.

Steve Harrison

23rd July 2012

 

Equity Release increasingly needed to fund retirement

Many Independent Financial Advisers are of the belief that Equity Release will become a mainstream solution for customers over the next few years. The reason for this is the need to cover shortfall in pension in retirement and even more worrying will need to use Equity Release to clear their mortgage and other debts.

There is also a growing trend for the more elderly to elect for care in the home rather than Nursing or Rest Homes which requires funding. When challenged about why so few of these Advisers discussed Equity Release with their clients the research has cited a lack of understanding of the products together with the concerns centred around the past history of Equity Release. I have extensive knowledge and expertise in the Equity Release market and can easily justify that the problems the industry suffered ( in the late 80’s and early 90’s) have long since been addressed.

One of the biggest challenges facing newly retired people is coming to terms with clearing their mortgage or debts that have been built up. Many newly retired people are approaching retirement with either short falls on their endowment mortgages or with Interest Only mortgages and no repayment vehicle at all. Couple this with credit card and possibly other debts they need help to plan their future in retirement. Downsizing is not always an option for even if they wanted to downsize the current property market may not be conducive. If you do come across situations where moving is not he best option then feel free to contact me as I will be only too pleased to speak with your customer.

 Recent statistics outlining the reasons why Equity Release is becoming more involved in debt consolidation can be seen below. The information below is from a survey on sales conducted in 2011.

 

Reason for Equity Release Percentage of Sales
Home/Garden Improvements 19%
Pay off Debts(eg loans and credit cards) 21%
Holidays 10%
Treat or helping family or friends 13%
Clear outstanding mortgage 20%
Help with regular bills 17%

 At the other end of the scale first time buyers are having great difficulty in raising the 10-15% deposits for their newhome which coupled with the moving in costs means that many are shunningproperty ownership in favour of renting. This is a classic scenario where parents or grandparents can help by releasing funds on their own property to gift to the children to help them get on the property ladder. If they dont many of todays young people will never experience property ownership.

 Customer attitudes are changing in that if they do have to go into care later then they will need to use their property to pay for it so they are giving their children funds now to help them on to the property ladder. As you talk to your clients please bear these points in mind.

Steve Harrison CeMAP, CeRER

 

Many turning to Equity Release to consolidate debt before retirement

 

There has been a reported increase in the number of people using equity release to pay off all debts before they enter into retirement, according to Andrea Rozario, Director General of Equity Release Council.

According to The UK Insolvency Debt Advice Service, a quarter of all UK pensioners are still to pay off their mortgage in full. In the most vulnerable cases, pensioners have to survive on just £42 a month after settling all their monthly outgoings, a far cry from the frivolous and fun retirement we have all come to expect.

Those who had taken out an interest-only mortgage are at particular risk as Rozario points out:

“We are seeing more people turning to equity release to consolidate debts as they come into retirement.

“It could be they had an interest-only mortgage previously – with a view of selling and paying off that mortgage.

“They may find that they no longer wish to do that and they find they have another option – which is to take out equity release.”²

But it is not just mortgage debt which is prompting an increase in equity release activity. Poorer pensions and depleted savings have also significantly contributed to people considering releasing equity from their homes to help fund retirement.

Do you have clients exposed to the above? If you do, I may be able to help you. Please contact me on the number below or my mobile 07714 414545 if you have a case you would like to talk through

Steve Harrison CeMAP, CeRER

Lenders demand repayment of Interest Only Mortgages

Dear Colleague

                       Much has recently been made of lenders tightening up on interest only loans. Many lenders now have a limit of 50% loan to value and have also introduced measures to ensure that borrowers have adequate repayment vehicles in place to repay the loan at the end of the term. This will make a difference moving forward in that new lending will be set up on a much more secure basis.

 

However this does not deal with the volumes of interest only mortgages that are already in place where there is no repayment strategy and the loan could only be repaid through downsizing. Between 2011 and 2020 the FSA thinks that 1.5m such mortgages worth £120bn will be due for repayment. Furthermore the FSA believes that 80% of the borrowers have no repayment strategy for these mortgages and are likely to enter retirement in debt.( Source- Daily Telegraph)

 

An Independent on Sunday investigation has found that more than a quarter of a million interest only borrowers could reach retirement age by the end of the decade while still owing substantial sums on their mortgage. These problems could be exacerbated by lower property values and the difficulty of remaining in work after reaching 60

 

In addition AVIVA have stated that they expect just 1% of its 71000 endowment plans that are due to mature in 2012 to meet their targets putting even more pressure on customers with maturing mortgages experiencing shortfalls. This together with lower property values means that many customers looking forward to retirement are doing so with trepidation caused by their mortgage position.

 

Quite often these customers either do not want to downsize or are not in a position to and if we are getting close to the end of the loan it is likely that the customer is either retired or about to contemplate retirement. These very customers could be very worried about the future and lenders are writing to them requesting details of how they will be repaying the loan as the end of the term approaches.

 

There are however ways that we can help these customers out by considering Equity Release and more particularly Lifetime Mortgages. Some lenders will also allow interest to be repaid. The solution can be more permanent and allow the customers to move forward towards retirement with their biggest and most important asset in place.

 

If you are aware of any individuals who potentially fall into this category and are concerned then please pick up the phone and I will be only too pleased to help your them to try and resolve their mortgage problem. As you can see from the above statistics this is not a niche problem affecting a few and therefore raising this with your clients may help

 

Steve Harrison

02/07/2012