A sustainable approach to equity release

Equity release lending totalled £365.7m in Q4 2014, making it a record-breaking year for the industry, with total lending reaching almost £1.4bn.

Related topics:  Special Features
Alice Watson | Stonehaven
28th January 2015
Features

The reasons behind the sector’s growth are in part due to the huge changes which have affected the retirement landscape over the last 12 months but there has also been a marked shift in people’s attitude towards equity release as over 55’s and their families become more comfortable with the flexible product options available in the market. With further developments on the horizon, we expect to see further growth in 2015, as equity release plays a bigger role in retirement planning.

The pension freedoms announced by the Chancellor in the 2014 Budget have already had an effect on the sector. While the full impact of this new flexibility is unknown, it is clear that many retirees will choose to take a proportion of their pension savings as a cash lump sum. We also know that a growing number of those approaching retirement have insufficient savings in place and will be relying on their state pension. Recent Office for National Statistics figures found that 35% of men aged 50-64 and 39% of women in the same age group have no private pension in place. In a climate where people are living longer and pension savings are being stretched further than ever, a lifetime mortgage can provide additional finance for those who are left without a sufficient income in retirement.

The Financial Conduct Authority’s Thematic Review found that there were 2.6 million interest-only mortgages due for repayment by 2041. For mortgages maturing up to 2016, 85% of the loans were for an LTV of 39% or less, which are within the LTV scale of the lifetime mortgage market. 150,000 interest-only mortgages will be maturing each year up to 2020 and the latest update from the CML indicated that of the 1.6m loans maturing in the next 10 years only 400,000 had managed to come to an arrangement with their lender. For homeowners who are faced with an interest only mortgage shortfall, equity release can provide a sensible solution and Stonehaven has already seen a growing trend in customers using this to clear their mortgage.

Alongside those approaching retirement, lifetime mortgages can also be a sensible solution for those who have already retired and are unaffected by the recent legislative changes. Home and garden improvements continue to top the lists of why people use lifetime mortgages, and this demand is set to continue. Growth will also come from those who want to gift to their children and grandchildren. First-time buyers are struggling to get onto the property ladder, and many homeowners are using a lifetime mortgage to help with deposits.

With this in mind, the demand for lifetime mortgages will continue to increase. Following the Budget changes, it is now more important than ever for financial advisers to include property assets in retirement planning. As a property is usually a person’s largest asset, the equity locked in it can be used to provide comfort in later years. Stonehaven sees this as a sustainable approach to financial security, which specifically addresses the generation of retirees who are asset rich but cash poor. 

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