Recent figures from the Equity Release Council showed that equity release hit its highest quarterly level for six years with a figure of £375.5m recorded for Q3 2014, a 15% increase on the previous quarter.
64% of advisers surveyed now expect equity release to be the next big financial product as the pension landscape changes. Over a third of advisers expect to see this happen by the end of 2015 and 45% of respondents anticipate that this will happen in the next three-to-five years.
Equity release is expected to become more mainstream as more high street lenders get involved in the market. In addition, the large volume of interest-only mortgages coming to an end leaves many homeowners with no repayment vehicle in place.
74% of advisers also believe older homeowners will use the capital locked up in their homes to top-up funds after spending their pension pots following the reforms.
71% of advisers believe pensioners will find themselves more financially squeezed due to poor pension provision, and 61% think a large proportion of people will use the cash to enjoy themselves using the money for luxuries such as travel. Other predicted uses include using the money to fund the needs of children and grandchildren (48%) and low interest rates on savings and falling annuity rates mean that people will need to look at other income sources (37%).
Only 17% of advisers did not predict a rise in equity release and a large proportion of these thought that misconceptions surrounding interest roll-up would be the reason for this.
Alice Watson, Product and Communications Manager, Stonehaven, said:
“The equity release sector is experiencing significant growth. At a time when mortgage lending is easing across the general population, those who find themselves asset rich thanks to rising property prices but cash poor are realising the benefits of unlocking the capital in their homes.
“We are entering a pension seachange and older homeowners need to consider their home as part of their pension pot to supplement the low interest rates and offset the volatility of drawing too much from their pension fund. Equity release is a reassuring solution and flexible products mean that borrowers can still provide a protected legacy for their children, while releasing some cash for themselves to enjoy.
“It's likely that we will see further uplift in the market over the next 12 months as more people carrying residual mortgage debt through interest-only mortgages look to repay those debts over the coming years. Locked out of traditional mortgage solutions, equity release can be the fix for many older homeowners who find themselves in this situation. The new pension’s freedoms from April 2015 will also boost the market as equity release becomes an even stronger part of the retirement income planning mix.
“Equity release has become an increasingly flexible and transparent product, which the industry can be proud of and sell with confidence. With April 2015 pension reforms on the horizon, more advisers will need to become qualified in order to give holistic retirement planning advice. Hopefully these reforms while challenging will be the catalyst for more advisers to undertake specialist training.”
