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Modern equity release has evolved along with its clients

The housing market has shown resilience during the pandemic and many over 55s will be considering the benefits of equity release for the first time. Will Hale, CEO at Key, considers the opportunities for advisers who wish to focus on the equity release market and outline the specific role of advice in this modern form of later life lending

The COVID-19 lockdown is easing across the UK as shops, restaurants and pubs reopen with the possibility of foreign travel returning, potentially, over the summer. The UK is returning to some form of normality and it feels like we are starting to get our equilibrium back.

Unfortunately, the financial and economic cost of the COVID-19 crisis will not be as easy to fix with employees who have lost their jobs or business owners who have seen their companies fail, struggling to pick up the pieces.

All age groups have felt the economic pain to some extent but it has been particularly tough for over-55s. Analysis shows the redundancy rate among over-50s is the highest of all age groups with the number made redundant between November and January this year nearly treble the same period in 2019. It’s estimated over-50s made up 28% of all furloughed employees.

Many will struggle to get back into work or may need to take pay cuts at a time when they need to focus on boosting their retirement income. The one saving grace of the COVID-19 crisis and the measures to tackle it has been the boom in house prices – Halifax House Price Index shows house prices have hit a new record high of £254,606 with the Stamp Duty holiday helping to boost demand and prices while the Government Mortgage Guarantee scheme is supporting first-time buyers.

The importance of property wealth and advice in retirement

Over-55s will in many cases have paid off mortgages and will be literally sitting in property wealth which can make a major contribution to their retirement. Helping clients to take a holistic look at their wealth and how this might support their retirement aspirations – even at this tricky time – is something that sits at the heart of the service which IFAs provide for clients. And the evolution of the later life lending market which includes equity release, retirement interest-only mortgages (RIO) and retirement mortgages means that it is better placed than ever before to meet these clients’ needs.

Modern equity release is more flexible than many realise and there are more products on the market designed to meet a range of customer needs and wants. Indeed, we saw 100 new plans launch in the latest year which takes the total number of plans available to an impressive 488. The addition of around 100 RIOs also shows the later life lending market is developing rapidly – and all of that has been achieved during the COVID-19 pandemic.

Equity release can deliver products which enable clients to serve interest or make ad hoc capital repayments and options for downsizing protection or inheritance protection as a range of flexible features become commonplace across the product landscape. Competition has seen interest rates (Q4 2020 average of 2.8%) which are fixed for life – not only lower than the average 10-year fix but also compare favourable to residential products.

Underpinning the evolution of the market however is specialist advice which is vital to ensure clients look at all their options as the industry evolves into a true later life lending market offering innovative products with flexible features. One size does not fit all. We find that less than one in five of those who approach Key end up taking out equity release. Instead looking at downsizing, retirement interest-only mortgages and other later life lending products or simply deciding to defer any decision further down the line.

The product story is important, but the bigger picture is the strong demand from new and existing clients and the growing acceptance that property wealth needs to play an integral part in financing later life.

How the money is being used

Since the Stamp Duty Holiday was announced last July, older homeowners have gifted £1 million per day or £254 million for house deposits. Alongside older customers using equity release themselves to fund a house purchase, the trend we have seen in gifting highlights how equity release is contributing to all sectors of the housing market with the benefits for first time buyers and second steppers a clear illustration of intergenerational fairness in action.

Refinancing of debt is also a big driver with 29% of the funds in 2020 being spent on mortgage repayment and 18% on unsecured debt repayment. Many clients will need to carry debt into retirement and with equity release interest rates at their current levels and products offering the option to service interest and/or make ad hoc capital repayments this can be a viable option.

So where to next? The size of the equity release market has stabilised at nearly £3.9 billion for the past three years. The bounce back seen at the end of 2020 gives confidence around the prospects for the year ahead. Equity release is not right for everyone but with continued innovation and more RIOs and other retirement mortgages adding to the options available to customers the later life lending market is in good health.

It is important that all over-55 homeowners take the time to consider if and how housing equity can play a role in their retirement planning.

This is a discussion that trusted independent financial advisers are well placed to facilitate, even if they are not qualified themselves in this area, with referrals to specialist partners a sensible route to ensuring good outcomes.

1 https://restless.co.uk/press/redundancies-amongst-the-over-50s-have-nearly[1]tripled-in-a-year/
2 https://www.halifax.co.uk/media-centre/house-price-index.html

About Will Hale

Will Hale joined Key in March 2014 as Corporate Business Development Director and was promoted to CEO in 2017. Prior to joining Key he was Director of Corporate Partnerships at specialist annuity provider Partnership and previously worked for Genworth’s European Retirement and Protection business and as Head of Distribution at Lincoln Financial Group. His early career was spent in the fund management and investment banking sectors working for JP Morgan and UBS.

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