While equity release is one of the most popular financial products for homeowners over 55, this hasn’t always been the case. Equity release was frowned upon in the past, but drastic shifts in the industry have meant a boom in the market.
So the past looked bad, and the present looks good… What about the future? Let’s unpack this question to discover if equity release will retain its thrown in the lending market, or is it just a fad?
Continue reading to find out more!
Is There Long-Term Suitability for Equity Release?
The long-term suitability of equity release is under the microscope of many people in the UK. Why? Because some consumers couldn’t move to an alternative plan that was more suitable for them. The solution might be to set up better terms and regulations on equity release products to become more long-term for stakeholders.
Look at the fast pace at which everything is changing. You might ask: are equity release products evolving at the same pace as modern-day life? As the new generation of retirees, we could ask, is equity release safe?
There needs to be a little more flexibility and product choice for stakeholders. In addition, the Equity Release Council‘s standards that protect the consumer can be a limitation and should be adapted1.
So, what can the solution be? Some hybrid product? Maybe you’ve asked for equity release advice from a professional financial adviser?
Well, here’s a question for you…
Is Equity Release Advice Important?
Some equity release companies won’t sell you a product unless you’ve received professional advice. But, as the FCA regulates the information and advice, it doesn’t always overcome the information gaps. To some, the advice is helpful, but not to others.
The Growth of the Equity Release Market
For the most part, UK homeowners who are a bit older have substantial capital. With today’s highly developed financial services, the low level of state care and state pensions, the equity release market has so much growth potential. However, it’s not necessarily realised.
Equity release growth is sometimes limited by low product flexibility, a limited number of providers and the lousy rep from the past. It could also be advertised more optimally to increase growth.
So, is the equity release market actually growing?
Its growth is limited due to the issues mentioned above, and the following:
- Industry and government need to normalise the use of housing or property wealth at an older age.
- Industry and government need to debunk the stigma around equity release, as the old rep isn’t correct anymore.
But, how can the market grow?
There are a handful of ways:
- The normalisation of equity release.
- The government could share equity and share risks with the public, as done in the US.
It may seem evident that progress isn’t linear. The latest stats the Equity Release Council published show that the UK’s equity release market had its fastest start to the year to date.
However, lending growth, compared to previous years, has slowed down significantly. So, the sector can’t be resting on its achievements.
3 Factors Shaping the Future of Equity Release
Factor #1: Demystifying Equity Release
The industry needs to work together to demystify this policy. Even though the market has grown substantially, too many people believe in equity release myths, causing them to run away from this idea.
Let me tell you something:
The industry needs to clarify the misconception that there’s only one type of equity release plan. The interest roll-up lifetime mortgage plan is trendy among older homeowners who can’t make repayments, but it’s not the only option out there.
Many options are catering to a wide variety of consumers. If people are aware of the other excellent equity release options on the market, the industry will see massive growth.
Factor #2: Continued Innovation
The answer to market growth is implementing continued innovation. The ERC states that there are twice as many equity release products available on the market compared to 2 years ago.
Continuing to respond to consumer needs will, in turn, give the industry a boost. Because consumers’ needs continuously evolve, the industry needs to keep growing. They can give consumers peace of mind by offering them flexible products.
Factor #3: Adviser Support
Many equity release companies say that supporting IFAs2 in getting their equity release qualification is crucial for making this policy more attractive. Undoubtedly, the more qualified and accredited an adviser is, the more likely customers are to choose equity release.
So, what does this all lead to?
Well, there is generally a big advice gap. With roughly 700 000 people retiring each year in the UK, the 33 000 registered advisers simply won’t be enough.
Let’s summarise briefly.
Equity Release & The Need to Evolve
For the equity release market to grow, the industry needs to cater to its consumers’ evolving needs. If not, people will start looking elsewhere for their investments or extra money. Equity release needs:
- An increase in the gap within long-term savings.
- A decrease in state benefits.
- Demographic changes.
- A prevalence of homeownership (roughly 70% of total UK property owners are 55 years and older).
- The number of retiring people with debt is increasing. Even interest-only mortgages, (1 in 4 people who retire have a mortgage or other debts to repay in their retirement).
Got Questions About the Future of Equity Release? Check These First
What Changes Need To Happen To Support The Future Of The Equity Release Market?
The industry needs to cater more specifically to the needs of its consumers. Equity release growth is sometimes limited by low product flexibility, a limited number of providers and the lousy rep equity release has had in the past.
Equity release can also be advertised more optimally to increase growth. So, these all need to be revisited and evolve to suit the consumer.
What's The Greatest Risk To The Future Of Equity Release?
If people continue to doubt the stability and efficacy of equity release, there won’t be much of a future for the equity release market, which might cause prices and costs to rise.
How Can ER Help People Fund Their Future Long-Term Care Needs In Retirement?
You can get the capital value of your home as a lump sum or an income based on the house’s value to pay for your long-term. The money is only repaid from the sale of your home when you pass away or move into permanent care.
Equity release has a future full of potential and growth. However, it needs to be supported by improving access, information and innovation.
If all these factors work together, they will push the equity release market to grow impressively over the coming years. It will also provide customers with services that they desperately need and want.
That being said, with regulation and interest rates being at an all-time low, equity release is a fantastic financial product to consider if you’re over 55.