If equity release is not the answer, what is the question?

When it comes to financial decisions, reviewing every possible avenue is critical. For those who are in retirement and planning how to finance the rest of their lives, these decisions are even more important. It's therefore disappointing to see FCA CEO Andrew Bailey's recent comments regarding equity release. Bailey warned that equity release was not the answer, so I must ask, 'What is the question?'

Related topics:  Retirement
Andrea Rozario
22nd September 2016
Andrea Rozario Bower Retirement
"For those trying to remortgage, the MMR has meant that many elderly borrowers are still having difficulties in the mainstream mortgage market."

For the retired, or the soon to be retired, the question will be, 'How am I going to afford my retirement?' Often, the answer isn't that straight forward. So the answer we should give is to lay out every possible option in a fair and balanced fashion. This holistic approach is the only way we can ensure that people can secure the retirement they want and deserve.

This question becomes even more significant when you consider that, regardless of anything we can do, there will be more people asking this question in the near future. The ageing of society is inevitable, and by 2039 over 25 million people will be aged over 60 and one in 12 will actually be over 80. With this larger elderly population, it is essential that we present every option evenly so we can help a section of society that will soon represent nearly a third of the entire population.

The options range from downsizing, remortgaging, use of pensions although generally not enough has been saved, or simply tightening ones belt. For some, downsizing to a smaller property may be the best option, but with the punitive effects of stamp duty and the expense of moving not to mention the emotional impact of moving away from the family home, most people in retirement just don't want to downsize.

For those trying to remortgage, the MMR has meant that many elderly borrowers are still having difficulties in the mainstream mortgage market. And for millions of people, their belts are too tight already, so even if downsizing, remortgaging or reducing expenses may seem like the best option on the face of it, there are numerous emotional and practical moving parts that can change everything.

What's more, with the lifetime mortgage being accessed from people aged 55 to over 80, it's even more important to avoid blanket statements. For the single 55 year old retiree, the reasons for accessing their equity will most likely be hugely different from the more elderly lifetime mortgage customer. The versatility of these products is such that both the young and old can benefit for different reasons – some may fund a dream trip, pay off lingering mortgage debt, reinvest in their property, or simply make their retirement more financially comfortable – and will be the answer to their financial needs.

The FCA has an incredibly important role to play, and their recent changes to affordability criteria, plus the recent announcement that they are consulting over a stand-alone equity release qualification, has had a tremendously positive effect. However, we must remember the power of words. Most people will not have read about the affordability criteria changes or care about the possibility of a new qualification, but simplistic reviews of the entire industry will hit home.

Equity release is constantly oversimplified in the mainstream media. Time and again the lifetime mortgage is written off as 'too expensive' or something 'only to be used as a last resort', but rarely do you hear anything more than black and white reviews.

Ultimately, equity release has been evolving, improving and becoming more cost-effective than ever before, so it falls on us and the FCA to ensure that possible customers are aware of the lifetime mortgage and how it could be good for them.

It's true that equity release is not for everyone, just as downsizing or remortgaging won't be for everyone, but it's essential that we educate people about their options. Only with balanced, even-handed reviews of retirees’ options can we make sure that the elderly population find the best answer to one of the most important financial decisions of their lives.

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