Equity release is balancing the generational divide

Andrea Rozario
27th December 2017
Andrea Rozario Bower Retirement
"With over a trillion pounds worth of housing wealth at the disposal of homeowners over 60, it is unsurprising that many are looking into equity release as a means of assisting their family members."

Equity release had a terrific end to 2017. Not only did Nationwide, a real high street heavyweight, join the market, we also saw a record number of customers take out a lifetime mortgage in October, and then again in November. What’s more, in terms of equity released, November was also record-breaking, with an all-time high average of £85,000 being withdrawn. Much of this growth is being driven by elderly homeowners cashing in their equity gains and giving a much-needed helping hand to younger first-time buyers.

Most retired homeowners have had great success in the housing market. Property, regardless of a view dips, has been one of the strongest assets in recent history. Yes, prices nationwide have stagnated and slid somewhat in the tail end of 2017, even in the usually bullish London area, but over the long-run property is always solid. However, although this has been very good news for older homeowners, this has meant that the first rung of the housing ladder has often been pulled out of reach of the younger generation.

This gap between young and old has fed into an unsavoury atmosphere of ‘generational tension’, where elderly people and baby boomers are blamed for this current housing climate. But I think this is unfair. Of course, baby boomers have had it comparatively easy to get on and climb the property ladder, but that’s not their fault! The fact that repeated Governments refuse to deal with the issue of housing supply - something every economics student from GCSE up knows drives up demand and therefore price - is nothing to do with individual homeowners. In truth, older homeowners are trying their damndest to bridge the gap to the young.

According to research conducted at the end of last year, UK parents lent approximately £6.5bn to their children in 2017 to help them get onto the property ladder. This staggering figure is put into context when you consider this would have made the Bank of Mum and Dad the UK’s 9th largest mortgage lender! The same research claims that nearly a third (29%) of the yearly 650,000 first-time buyers receive help from their family. However, with withdrawals from the family vaults increasing in frequency and value, the bank of Mum and Dad (and often grandma and grandpa) are looking to other avenues to finance their assistance.

The use of equity release is becoming more popular and record numbers of customers are using lifetime mortgages to pass on an early inheritance or help with mortgage deposits. Repaying debts and mortgages still remains the most popular reason people release equity, followed by making home improvements, but helping the family financially often comes next - and this will only increase in popularity as the housing crisis deepens.

With over a trillion pounds worth of housing wealth at the disposal of homeowners over 60, it is unsurprising that many are looking into equity release as a means of assisting their family members. All homeowners, regardless of how long they have owned their property, appreciate that today’s property ladder is getting harder and harder to jump onto, and a solution is not forthcoming from anyone in Westminster. Equity release, therefore, is perfectly placed to transfer some of the older homeowners’ housing wealth into the hands of the young.

Ultimately, older homeowners are tying extremely hard to diffuse any ‘generational tension’, and products in the equity release stable are helping them do this. Nobody wants the young to become trapped in the rental market, and while little or nothing is being done to seriously increase housing supply, options like the lifetime mortgage are helping to even the playing field.

Related articles
More from Retirement