Does Equity Release Have a Future or Not?
Equity release has been more and more popular in the UK. However, does it have a future? Well, let’s look at equity release products as a start to this discussion.
Equity Release Products
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 be more long-term for stakeholders.
Look at the fast pace at which everything is changing. You might ask: Are equity release products evolving with the current pace modern-day life is developing, including the new generation of retirees? And, in general, is equity release safe?
There needs to be a little more flexibility and product choice for stakeholders, and sometimes the ERC standards that protect the consumer can be a limitation as well1. So, what can the solution be? Some sort of hybrid product? Maybe you’ve asked for an 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.
But is the equity release market growing?
Is Equity Release Growth A Thing?
For the most part, UK homeowners have quite a substantial amount of capital if they’re a bit older. With the highly developed financial services of today and the low level of state care and state pensions, the equity release market has so much growth potential. However, it’s not necessarily realised.
Let me tell you something.
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.
Equity release market growth is limited due to the issues mentioned above, as well as 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 last rep isn’t correct anymore.
So, how can the market grow?
There are a few potential ways for the equity release market to grow:
- The normalisation of equity release
- If the government shares equity, share risks with the public, as the state does 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 a year to date, and lending growth has slowed down a lot once they compared it to previous years. So the sector can’t be resting rest on its achievements.
The following three factors will go a long way to shape the future of equity release:
Demystify Equity Release
The equity release industry needs to work together and demystify the equity release. Even though the market has grown substantially, there are still people trusting in major equity release myths, causing them to run from this idea.
Let me tell you something.
The equity release industry needs to clear the myth that there’s only one type of equity release plan, the interest roll-up lifetime mortgage plan. Even though it’s trendy among older homeowners who can’t make repayments, it isn’t the only option out there. There are so many options catering to a wider variety of consumers. If people are aware of the other excellent equity release options on the market, equity release will see massive growth as an industry.
The industry should implement continued innovation – the answer to market growth. The ERC states that there are twice as many equity release products available on the market when compared to 2 years ago. Continuing to respond to consumer needs will, in turn, give the industry a boost. Even though consumers’ needs evolve, the equity release industry also needs to keep growing and giving consumers peace of mind with flexible products.
Some equity release companies say that support for IFAs to get equity release qualification is the most critical factor that can make equity release attractive. Undoubtedly, the more qualified an adviser is, the more potential there is for more customers to choose equity release.
So, what does this all lead to?
Well, there is generally a big advice gap, one could say. With roughly 700 000 people retiring each year in the UK, the 33 000 registered advisers2 simply won’t be enough.
Let’s summarise briefly.
Equity Release Needs To Provide For Their Consumers
For the equity release market to grow, the industry needs to cater to its consumers’ evolving needs. Otherwise, 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 ownership is 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)
It could be a good idea because it’s tax-free cash from your home, without worrying about monthly repayments. It could be bad if you don’t want your heirs to have a different inheritance than they would’ve if you didn’t take money from your property through equity release.
However, it all comes down to your specific financial situation and what you can afford. Some people find that equity release plus all the costs are more cost-effective than other alternatives. Speak to a financial adviser to find out if it’s a bad idea for you or not.
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.
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.
You can get the capital value of objects in your home as a lump sum or an income based on the house’s value to pay for your long-term. You’ll just need to repay that money you accessed at a later stage. There are two types:
- Lifetime Mortgage
The first type of equity release is a lifetime mortgage. This type lets you take out a mortgage on your home if it’s your primary residence. However, you will remain the owner. You’ll have the option to ringfence part of your property for your family to inherit. You can also make repayments or let the interest increase. Better yet, if there’s any loan amount or any accrued interest, it’ll be paid back when you pass away or need long-term medical care.
- Home Reversion
The second type is a home reversion, which means you sell some of your property or your whole property. You can sell it to someone like a home reversion provider, and they’ll pay you a lump sum for it, but they can also pay you in regular payments. It’s your choice.
So you can choose the option that’ll suit your needs best and take care of you while you’re in retirement.
Equity release has a future full of potential and much more growth. However, it needs to be supported by access, informing and innovation. If all these factors work together, they will push the equity release market to reach impressive growth over the years, and customers will have what they need and what they want.