"Some advisers might leave equity release out of client conversations because of negative reports they have heard in the past."
No two retirements are the same today. Despite the stereotypes that still exist about retirees, later life is now more about travelling, home renovations and spending time with family.
And it’s lasting longer too; gone are the days when a normal retirement lasted 5 or 10 years. These days, it can be as long as two or even three decades.
Longer retirements also mean extra pressure on pension pots that need to last longer, potentially covering care costs too - and with the decline of final salary pensions, those pots can be even smaller than before.
With this extra pressure on savings and an ambitious generation of homeowners who want to make the most of their retirement, unlocking capital tied up in property is becoming more popular. And it’s no surprise – the average house price in Britain has risen 270% over the past 20 years and Britain’s over-55s now own a staggering £1 trillion in housing wealth. Advisers who aren’t currently talking to their older clients about lifetime mortgages could be missing a trick.
It’s a fast-growing market after all. Figures published by the Equity Release Council (ERC) earlier this year show the lifetime mortgage market hit almost £4 billion in 2018 – up nearly 30% on the previous year. Yet many advisers - even those who currently hold the relevant equity release qualification - still haven’t engaged in this market.
A lifetime mortgage is a loan secured against a client’s home which can provide a cash lump sum or a regular income over a fixed term. This type of equity release could be a good option for a range of clients, from those struggling to fund their day-to-day expenses to others who want some extra cash for home improvements. In some cases, it’s even benefitting customers who want to help their children or grandchildren onto the property ladder, although there may be cheaper ways to borrow money.
Some advisers might leave equity release out of client conversations because of negative reports they have heard in the past. Misperceptions about equity release still persist and as an industry we need to tackle the myths about lifetime mortgages.
Firstly, as long as the customer meets the terms and conditions, they will never be ‘kicked out’ of their home. Unlike a conventional mortgage, lifetime mortgages are based on the value of the customer’s home and because with many mortgages the loan is not paid back until the customer moves into long-term care or dies, the customer is unable to default on the loan.
Secondly, all equity release plans approved by the ERC will benefit from the no negative equity guarantee safeguard. This ensures that a borrower or their estate will never owe more than the value of their home.
There is also a common misconception that the unlocked equity can only be taken as a lump sum, making lifetime mortgages inflexible products. In fact, customers can now opt to access their housing wealth in smaller amounts as and when they need and some lifetime mortgages now even offer the chance to unlock equity as a fixed, monthly income. Other options give borrowers much more flexibility if they want to make repayments too, such as our Optional Payment Lifetime Mortgage, which allows customers to make monthly interest repayments, free of charge.
Lifetime mortgages inevitably have an impact on the inheritance of a customer’s next of kin, given part of the proceeds from the sale of the familial home will be used to pay off the lifetime mortgage policy.
Creating an effective service
For advisers considering entering the lifetime mortgage market, working towards equity release qualifications is a great start. Amongst others, qualifications are offered by the Chartered Insurance Institute (CII) with its Certificate in Equity Release and the London Institute of Banking & Finance’s Certificate in Regulated Equity Release. Once qualified, lifetime mortgage providers such as Legal & General offer free workshops and development courses to ensure continuous professional development.
Clients can often find lifetime mortgages complex, however, so these products need to be introduced carefully. Advisers today have an opportunity to help their clients navigate these complexities and help them to tackle the challenging situations that retirees are increasingly facing in later life. The growing lifetime mortgage market offers plenty of support with online resources and regular workshops, ensuring advisers’ entry into the sector is as smooth as possible.
The information contained in this article is intended solely for professional financial advisers and should not be relied upon by private investors or any other persons to make financial decisions.