Equity release - could it be right for you?
In the UK in 2016, there are 23 million people aged 50 and over. We all know that in recent decades life expectancy has increased and it is expected that over the next 17 years the number of people aged 65 plus will rise by 40%. In Age UK’s ‘Reasons for Care in Crisis’ report it stated that the number of people age 65 and over grew by more than 1 million between 2005/2006 and 2012/2013, with the number of people aged 85 and over rising by 30%**.
Against this backdrop it is estimated that the amount of equity held in older people’s homes is somewhere in the region of £1.4 trillion***.
Equity release offers the potential to meet some of the challenges presented by living longer. To put the financial cost into perspective, a man who retires at 64 today, will, on average, spend 35% of his life in retirement. Compare that to the 1950’s when the average man retired at 67 and spent 18% of his life in retirement*. However, as retirement lengthens, many people find they have not made adequate provision for their financial needs.
As a consequence of our ageing population, the equity release market has doubled in size since 2011. Homeowners over the age of 55 unlocked a record amount of housing wealth via drawdown lifetime mortgages in the last three months of 2015 and the level of lending saw a new high of £1.16 billion****.
Many remember equity release ‘horror stories’ of the 1980‘s and still have very real concerns. However, today’s equity release arrangements are very different beasts to those on offer 30 years ago.
All arrangements are now regulated by the Financial Conduct Authority (FCA) and advisers must have an appropriate qualification in order to give advice about equity release. Modern schemes are a far cry from those of the 80’s, and include safeguards, such as:
- a guarantee of no negative equity
- an option of including inheritance protection
- fixed interest rates
- no mandatory repayments during the loan term
In addition, the adoption of the Safe Home Income Plan standards of the 1990’s, along with subsequent changes in regulation under the auspices of the FCA and the Equity Release Council, have made major differences to equity release.
Despite this, it remains very much an area requiring specialist advice. When a client contacts me about equity release, my priorities are always to discuss the alternatives, to make sure any State benefits will not be affected, and to discuss in detail the various types of equity release arrangements on offer to ensure they will meet my client’s needs.
I have spoken to many clients regarding equity release but no two have had the same circumstances. It is vital that your requirements are understood before your adviser makes recommendations as generally, once an equity release/ lifetime mortgage loan is taken out, it is intended to be exactly that - for life!
If you are considering equity release, our advice would be that not only should you go to a specialist financial adviser who has the appropriate qualification, but you should also seek legal advice.
Source: *Age UK Later Life Factsheet (Feb 2016)
Source: ** Care in Crisis Report 2014
Source: *** English Longitudinal Study of Aging (ELSA)
Source: **** Equity Release Council