Benefits of equity release
What are the benefits of equity release in today’s market?
What are the negatives of equity release in today’s market?
What are you advising clients regarding equity release?
Copy article
7 responses from the Newspage communityCopy all
Copy all
Copy
The volume of equity release transactions has fallen around 50% since the rise of interest rates last year.
The reason for such a harsh decline is due to the change in the purpose of funds. Funds were historically being released for smaller items such as holidays and motorhomes etc.
As interest rates and the running costs of property have risen, consumers have chosen to put off purchasing unessential items and experiences, especially when it requires giving away far more of their equity due to high-interest rates.
There is however still a market for ER and the new market serves very important needs. Most notably, those clients who are coming to the end of their fixed rate on an interest-only mortgage. The proposed interest rate on their new product will be much higher and therefore monthly payments will be higher. Using equity release to redeem their mortgage will mean they can stay in their property for their remaining years without the worry of monthly mortgage payments.
The reason for such a harsh decline is due to the change in the purpose of funds. Funds were historically being released for smaller items such as holidays and motorhomes etc.
As interest rates and the running costs of property have risen, consumers have chosen to put off purchasing unessential items and experiences, especially when it requires giving away far more of their equity due to high-interest rates.
There is however still a market for ER and the new market serves very important needs. Most notably, those clients who are coming to the end of their fixed rate on an interest-only mortgage. The proposed interest rate on their new product will be much higher and therefore monthly payments will be higher. Using equity release to redeem their mortgage will mean they can stay in their property for their remaining years without the worry of monthly mortgage payments.
Copy
The average Joe in the UK is still blissfully unaware of the benefits of a modern Lifetime mortgage. Some people are under such pressure from mortgages and other bills, but not when they take the plunge and do something about it. I always remind myself of a client I helped a while back who should have retired years ago but had a mortgage and crippling debts, some of which were in arrears, as well as work needing to be done to the home. The Lifetime mortgage I arranged took that all away, which meant he could retire and get the work done. Currently, I find a lot of people have interest-only mortgages ending and who don't have enough equity in their homes so cannot use the current Lifetime products on offer. There is a clear gap in the market for a lender willing to take responsibility for the past, one who will take on those with existing mortgages who are still able to service their loans. Perhaps term extensions, based on payment history over income. Clients should as ever get advice.
Copy
There are a lot of interest only maturities coming up. For those that don’t want to sell their home to repay the mortgage, equity release can be a way to stay in their home and get away with those mortgage payments through retirement. With any type of equity release it’s important to consider the reduction in equity values and the likelihood this would impact any inheritance for the surviving children.
Copy
Equity release mortgages are very useful for family members who want to help children and grandchildren get on the property ladder. It makes a hell of a difference to these first-time-buyers. The negative we see with equity release deals is that the mainstream market offers much better value. In our opinion there is still some work to do from these lenders in making them more Consumer Duty-friendly.
Copy
Equity release offers older people the opportunity to access wealth tied up in their home for a variety of reasons. The common reasons I have seen lately include gifting to children to get them on the property ladder, or helping them to reduce a mortgage balance as a result of recent rate rises, and also to assist the borrowers themselves with the increased costs of living. Pensions and savings do not seem to be stretching as far as they once were. I have seen a reduction in the aspirational releases such as to go on holidays or complete non-essential home improvements and an increase in the needs-based releases, for example, to repair the home and maintain standard of living. The negatives are the higher interest rates than we have seen recently and the lower loan to values being offered by providers. Also naturally the potential for a greater compound/roll-up effect due to rates. I am also seeing clients looking at servicing the interest to help mitigate this.
Copy
Lifetime mortgages are, and will continue to be, a growing part of the financial landscape over the coming years. Especially for those whose retirement planning was maybe left a little late and now they have a shortfall in what their pension will allow them to do and the plans they had for their retirement. Sadly, equity release (which is just one form of lifetime mortgage) still has to carry around the burden of some horror stories from the 80's and despite decades of robust regulation of both the products and the advice delivery, many clients rule them out when they could be their ideal solution. Going forward we're likely to see more and more people's retirement income be made up of a mix of pensions, savings and lifetime mortgages.
Copy
Equity release allows older homeowners to access money from their property equity, which can be used to clear debt, make home improvements, or supplement income. It can also fund retirement in a safe, well-regulated manner with products that have been designed predominately with the client in mind. "Lending of last resort" is a popular phrase, and for homeowners who need money and have no other options, it may work. However, there are risks, Rates are high compared to the last 2 or 3 years. meaning the effect of rolling up interest is more pronounced. Sometimes borrowing money where no payback is required can be all too easy and tempting, so I think it really needs to be discussed very openly and carefully. I advise people to take no more than is necessary in monetary terms, go over the Terms and Conditions slowly and be really clear about them. Avoid frivolous Spending and focus on making essential repairs or helping younger family members.