Equity Release ,while not right for everyone, can give a significant edge as a qualification to an adviser.
The simple fact is that the UK population is gradually getting older. By 2017 we expect to see over 660000 reach the age of 65 and – depending on their health and finances- retire. This situation is only going to increase.
What does this mean for the country? Whilst longevity is a boon for the individual it is a nightmare for the government who will be required to support these people for longer. The burden for this expense will fall on the taxpayer who is also getting older. The government has already taken some steps to resolve this issue such as extending retirement ages however the fact remains that people are not saving enough for retirement.
The current economic turmoil is working against this as people are barely surviving never mind saving for retirement as their priorities are clearly focussed on today. As a result pensioners are reaching retirement and finding a significant gap between what they have saved and what they will need to survive in retirement.
Whilst downsizing becomes an obvious solution it often does work out that way due to the current mortgage market and some people do not live in properties that would generate enough capital for them to downsize. The one asset these people do have is their own home and many are now turning to Equity Release to enable them to enjoy a better standard of living in retirement.
People living longer means that legacies are often now not as important in relation to retirees being able to enjoy their retirement . It is important that these retirees get the right advice from an equity release specialist.
Advisers should improve the way they market their equity release options and engage with local and regional press, claimed a prominent equity release provider.
His belief is that consumers have a lack of understanding about the equity release options available to them and more specifically, a lack of knowledge as to where they can access professional advice.
Recent research by provider Just Retirement found that 60% of pensioners wanted reassurance that equity release products were regulated, nine out of ten pensioners could not name an equity release lender and four out of ten did not know where to go for advice.
The Equity Release Council was formed in May with the remit to widen the scope and awareness of equity release and clearly there is still a lot of work to do.
This is emphasised by the fact that those people who do understand the need for Equity Release are very positive about how it has helped them to achieve their need.
We as an industry, have to be in full-on education mode at all times and part of the way advisers acheive this is through local media and marketing.
800,000 people believe they will need to release equity from their homes in order to maintain a decent standard of living, according to latest research.
Understood to be the largest piece of consumer research to date, equity releae provider, Just Retirement has found that the average retiree believes they need an income of £17000 a year for a good quality of life.
Retirees and those approaching retirement are also aware that the income they will get from annuities and the state is likely to fall considerably short of this and are open to opportunities such as equity release to bridge that gap.
However, the 32 page report ” The Role of Housing Equity in Retirement Planning”, not only highlights the need for equity release but also the requirement for consumer education about the product. Nine in ten could not name an equity release provider while four in ten did’nt know where to go for help and advice
60 per cent of retirees also wanted reassurances that equity release products are regulated, prompting calls for the government to work with the industry to ensure people are equipped with enough understanding to feel comfortable and confident about using such a product as part of their retirement planning.
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.
23rd July 2012
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
|Pay off Debts(eg loans and credit cards)
|Treat or helping family or friends
|Clear outstanding mortgage
|Help with regular bills
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
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
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
Safe Home Income Plan (SHIP) which has been the trade body for Equity Release for many years has been replaced with effect from 1st June 2012 by a new organisation called The Equity Release Council. SHIP was an organisation that set standards for products in the industry. These standards will continue with the Equity Release Council and include:
- The right for the customer to remain in their homes for the rest of their lives
- The right to be sable to move in the future and take the plan with them
- The requirement for the customer to take independent legal advice.
- No negative equity guarantee which means that the estate cannot owe more that the sale value of the property after death.
The biggest benefit is that the Equity Release Council is a much more encompassing organisation as membership is sought not only from Equity Release lenders but also solicitors and Equity Release Advisers to encompass all aspects of the Equity Release process.
The aim of the Equity Release Council is centred on growing the Equity Release market safely and creating an industry that is able to thrive and develop. It aims to improve the customer journey by providing unbiased information and advice. The aim is also to lobby government to influence policy trying get Equity Release positioned more positively with in the scope of retirement plans.
This new body is a very positive development for the Equity Release Market which must now begin to make a difference