Why Is Equity Release Increasing In Popularity?
- In 2016 Equity Release lending volumes grew 26% on 2015 with a total value of £2.1bn lent.
- In total, there were 27,666 equity release plans in 2016 and this is expected to rise to 33,000 in 2017.
The figures show there is a clear appetite for Equity Release, here we discuss some of the key drivers in this increase.
Cash Poor Asset Rich
People have strived to own their own home, which means they may have neglected their retirement savings. This has resulted in a large percentage of the population entering retirement with astonishing property wealth but little in regards to any other retirement income from pensions or alternative investments.
In St Albans alone, over 65’s are estimated to be sitting on £4.68bn of property, with the average property price for over 65’s that own their home outright calculated at £598,848; which is an incredibly sizeable asset to have.
For those who find themselves short of income in retirement and wishing to stay in their own home, equity release can be an attractive option to explore.
Inheritance Tax Planning
Rising house prices means that many people’s estate is now well over the current inheritance tax threshold of £325,000. Many people are now having to consult a financial adviser to minimise the inheritance tax bill on their estate.
One inheritance tax planning option that they are likely to consider is Equity Release, as this reduces the value of their estate and provides the option to put the funds into a trust or spend on their retirement. Make sure you consult an independent financial adviser to discuss all the inheritance tax planning options available to you.
Baby Boomers
At the end of World War 2 birth rates across the world spiked, thus giving the name ‘Baby Boomers’ to those born between 1946 and 1964. Baby Boomers unlike the previous generation, who worked hard and saved hard, are more likely to have the attitude ‘spend now, pay later’. This has resulted in them spending money on property assets rather than retirement savings.
As of the 2011 census, around 30% of the population are estimated to be Baby Boomers, which again could explain the rise of equity release cases.
The Desire to Grow Old in Own Home
A recent study undertaken by Retirement Advantage has revealed that 82% of homeowners wish to grow old in their own home however only 4% of those surveyed said they would consider equity release. This is at odds with the 63% who answered that their home was worth more than their pensions.
As knowledge, surrounding equity release products grows people are likely to increasingly consider Equity Release as potential option.
The Regulation of Equity Release
Equity Release previously suffered with a bad reputation from the days when it was unregulated and people taking it out saw their homes fall into negative equity and landed themselves in crippling debt.
However, life time mortgages and home reversion plans are now overseen by the Financial Conduct Authority (FCA). This means that they come with a “no negative equity guarantee” - so when your property is sold and fees have been paid if there is not enough money left within the estate to repay the outstanding loan to your provider, neither you or your estate will be liable to pay any more.
Interest Only Mortgages
Interest only mortgages were incredibly popular in the 90s and 00’s before the 2007 credit crisis; they were sold as an easy way to make the most of the boom in the property market. Many now fear of an interest only mortgage ‘time bomb’ with mortgages taken out in that time, the FCA have warned that around 300,000 homeowners are at risk of losing their homes as they do not have the capital to pay back their loan in full before maturity.
Alongside downsizing, the other option we would discuss with client’s is equity release as the homeowner is then able to remain in their home.
Retirement Planning
People view their property as their most valuable asset and have tended to include this in their retirement planning with the view of downsizing. As previously touched upon in this article many people, when it comes to retirement, wish to remain in their own home instead of downsizing. Therefore, equity release is an option which allows them to remain in their own home whilst utilising the equity in their property.
If you are considering equity release you should always discuss the options available to you with an independent financial planner as there may be an alternative solution which better meets your needs. To discuss equity release and your retirement planning please do not hesitate to contact the team at KDW:
Tel: 01727 85 22 99
Email: mail@kdw.co.uk