With over 55s representing £1 trillion of housing wealth, later life lending could be the key to equity release for your older customers.
FTSE100 financial services group Legal & General and Cebr reported that in May 3.1 million homes worth £938 billion were owned by over 55 year olds. This has now exceeded the £1 trillion mark.
Recent projections by the Office for National Statistics (ONS) show that in 50 years’ time, there are likely to be an additional 8.6 million people aged 65 years and over – a population roughly the size of London.
The growing equity release market
The lending market is aware of the challenges that lie ahead and is continuously increasing its offering to provide ways for older customers to find suitable outcomes. Product innovation from many lenders is very encouraging for later life lending and solutions are varied.
However, equity release plays a major role and is a growing market with lots of new entrants to ensure customers with borrowing needs in later life can move by ‘rightsizing’ for their future needs.
This is evidenced by the Equity Release Council (ERC) reporting that the number of product options available to older borrowers more than doubled in the last few years.
Equity release is on the rise – but it’s not the only solution
Equity release is clearly on the up, with 21,490 new plans agreed in the first half of 2018, up by 28% on a year earlier. During the same period, customers making withdrawals from their agreed reserve funds increased by 25%.
This illustrates the growing need for borrowing in later life, which is only set to increase, but we do need to ensure equity release is applied in the right circumstances.
Looking back to a full year’s results, in 2017, the equity release market reached £3.06bn, a growth of 42% over 2016.
There’s a renewed focus on equity release mortgages so that retired homeowners can afford the lifestyle they have become used to when they were working as they strive to achieve the ‘good life’ well into old age.
But it’s also vital that lenders and the industry work together to ensure that with increased competition the standards are maintained, so customers are protected and solutions provided which ensure good outcomes for customers in the long term.
With product innovation in this sector increasing rapidly, lenders are either amending or altering their criteria to suit the market. A combination of extending maximum lending ages and taking very different views on retirement income sources means there are now many more options available.
Equally there’s growing flexibility in product choices in the equity release market. As well as the traditional lifetime mortgages and home reversion plans, there are also the new Retirement Interest Only (RIO) mortgages, which are proving very popular.
These operate in a similar way to a normal interest only mortgage but are targeted at retirees and have advantages such as:
- Easier acceptance as the house will ultimately be sold to repay the loan
- No interest roll-up as the interest is paid each month
- No fixed term
The traditional products for equity release are lifetime mortgages, where customers borrow money secured against their homes. They are usually repaid from their sales when they move permanently into residential care or pass away.
Slightly less popular are home reversion plans where money is raised by clients selling all or part of their homes while continuing to live in them until they move into permanent residential care or pass away.
It’s clear that our ageing population – with increasing property wealth – is seeing this as a way to fund a more comfortable retirement. Lenders are responding by offering a broader range of competitively priced products that can help control interest roll-up later in life and limit up-front costs.
The demand for equity release is almost certainly set to be high again in 2019 as more people look to supplement their pension to help meet the cost of care, funding a new smaller home and assist children and grandchildren onto the housing ladder.
How can equity release help your clients
Now is a good time for brokers and advisers to learn more about this market. There’s no ‘one size fits all’ product with many as varied as clients’ requirements, so it’s really important to apply the right solution. Clever Lending can help you through the maze and find the solutions your older clients need for planning their future financial needs.
Just contact Clever Lending at email@example.com or call us on 0800 316 2224.
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