A new independent report which was commissioned by the Equity Release Council has set out the potential role of the £5 trillion property wealth in addressing the challenges faced by UK’s aging population .The report which was released in March this year, is called Later Life Lending: Great Expectations and is authored by Jon Dunckley, director at About Consulting Group who has 25 years of expertise in the equity release market.
The report outlines the progress that the equity release market has made in the last half-century since its first product launches in the 1960s. There are currently 80,000 jobs which are supported directly or indirectly by equity release funding.
Equity release was once seen as a last resort financial product but now is part of mainstream financial planning. Only in the 2010s the growth in released equity was six-fold! Legal and General make some bold predictions that by 2030, releases may reach the whooping £12 billion. Although the sector has seen a huge growth and has a high potential due to the enormous wealth growth owned by those aged 55+, there are still some major roadblocks that need to be overcome.
The biggest obstacle preventing equity release from achieving its full potential is lack of trust and lack of education. Consumers still see equity release and other later life lending products as a last resort option or are not fully informed about all of the benefits and features of different equity release products. Furthermore, many consumers don’t currently have a relationship with a financial adviser or don’t feel they can trust financial advice professionals.
Even now if consumers do approach a financial adviser, property wealth might not even be part of the conversation. The reason is that many financial advice professionals still work in silos and look at either mortgages, equity release or broader financial planning but very rarely all three areas at the same time. This is also due to the current regulatory framework which treats mortgages and equity release differently from broader financial advice, often known as ‘wealth advice’.
Furthermore, the report raises the issue of the position of the government on the role of property wealth in the future. The report offers a practical roadmap on how to tackle the main challenges faced by the equity release industry. Some of the propositions include asking the government to set out a clear vision and a new approach towards housing wealth. The report proposes a new cross party commission for older people to be backed by a Minister for the elderly.
The second proposal is to refresh current regulations by engaging in an open conversation with the sector to better understand the current challenges. The report also recommends an open dialogue about the remuneration of financial advisers as well as the services they provide.
The report reiterates the need for educating the public about the later life lending market. The equity release market has long had a bad reputation, even making it to one of Britain’s most famous sitcoms ‘Coronation Street’ when one of the characters is being ripped off by an adviser who recommends her a scheme which is dubious. This, of course, has influenced public perception and equity release wasn’t often seen as the ‘golden child’ of the financial services industry.
However, what the report reiterates is that the industry has changed massively for the last fifty years. It is regulated by the Financial Conduct Authority and there are currently very low levels of complaints that are being upheld by the Financial Ombudsman service. The public needs to see equity release as a viable financial option for those aged 55+as opposed to a hopeless last resort option.
The market is now mature and there are different products which are tailored to everyone’s needs. There is a difference between a lifetime mortgage and home reversion. What some people don’t know is that with lifetime mortgages you normally don’t have to make any repayments while you are still alive and you continue to own your home. The other advantage of a lifetime mortgage is that the cash is tax-free. On top of that, the good news is that there is ‘no negative equity’ guarantee meaning that you’ll never owe more than your house is worth.
If you consider releasing equity, it is important that you speak to a financial adviser, so that they can offer you an appropriate option which is tailored to your personal circumstances. The amount of money you can borrow will depend on your age and your property’s worth. You can find all of the relevant information on the website of the Equity Release Council, where you can explore the FAQ page. If you would like to learn more about releasing equity, we recommend exploring this page.
