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Reasons for taking out equity release

Journalist: Elizabeth Anderson, Freelancer

ended 13. November 2023

Is equity release increasingly being driven by necessity rather than aspiration?

I am looking for comment on brokers / financial advisers on reasons for people currently taking out equity release products. Eg are homeowners increasingly worried about going into retirement with a traditional mortgage still to pay off? Or do they need the equity release money to cover the rising cost of living?

Thank you

 

EDIT Friday - thanks so much for all your responses so far! Would love some concrete numbers on increase in enquiries this year / increase in amounts borrowed? Thank you!

 

9 responses from the Newspage community

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Editor
Bob Singh
Founder at Chess Mortgages
Equity Release (ER) is still a very misunderstood product. The legacy left by the old reversionary scheme still leaves a bad taste.

The modern ER schemes comply with the high standards of the Equity Release Council and are more like standard mortgages except you don't make repayments unless you want to.

The need for these products arises out of lending criteria prohibiting term extensions without underwriting. ER has no financial underwriting as it's mainly equity driven.

The main reasons ER is used are:
1/ End of term on an Interest Only Mortgage
2/ Release funds to improve home/travel and better enjoy one's retirement
3/ Debt Consolidation
4/ IHT Planning / early inheritance
5/ Nest Egg

The cost of living crisis and higher interest rates may have accelerated the timeline for most but good advice is essential to better understand the effect the effects of compound interest from a high rate baseline.

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Simon Bridgland
Director at Charwin Private Clients
I wouldn't say the homeowners I have personally helped are worried as such about having a mortgage in later life. Many of them already have mortgage debts in place, they simply wish to extend the term and keep servicing the interest. Over the last year, I haven't seen an obvious migration to be mainly needs based reasons for arranging later life products. Specifically looking at lifetime mortgages over this last year, roughly 50% had an element of necessity, such as paying a mortgage lender or needing to do vital repairs to the home, 10% were for purchases and 40 % still had an element of enjoyment to it, holidays, a new car or gifting, so it's not all doom and gloom. That said the market is crying out for innovation in available products, I get many enquiries from people I simply cannot help who have higher loan to value needs which cannot be met with any product currently available, some owing typically 50-60% LTV and don't have the income available to support a traditional mortgage.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Our equity release enquires have remained constant, despite interest rates going up. The mix of rationale to these enquires has flipped though. Two years ago most people wanted to help children, increase disposal spending or some other cap ex reason. Now, 90% of our enquiries are due to the cost of living squeezing expenditure and clients looking for ways to reduce their outgoings or increase their receipts. Paying off mortgages is top, with clearing other debts a close second.
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Gary Bush
Financial Adviser at MortgageShop.com
Equity Release in the main is sought, we find, by homeowners that have no mortgage commitments, loads of property equity, but not enough pension income coming in for the lifestyle that they want to live - this has been especially true during this cost of living crisis. Gone are the days of inactive pensioners, 2023 sees people in their twilight years jetting and sailing off all over the globe and currently they see Equity release as the most viable option that doesn't create a new commitment to their bulging list of expenses.
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Mark Stallard
Director and Advisor at House and Holiday Home Mortgages
The majority of our recent enquiries have used equity release to improve their quality of life.

In some circumstances, equity release has been used to pay off expensive loans for cars and solar panels, which in turn has enabled clients to retire early. This improved their monthly cash flow poisition and allowed them to enjoy life more.

In another example, these clients could survive financially without releasing equity, however, they value things such as private healthcare with are costly. In this circumstance, instead of scraping by each month, they've decided to use the equity in their home to allow this spending and make monthly living more comfortable.

In both these scenarios, the families have children who have been involved in the discussions throughout and are keen for their parents to live well.
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James Bull
Mortgage Broker at JB Mortgages
There are still a lot of people out there who took out interest-only mortgages many years ago who have never taken out a suitable repayment vehicle. When they get to the term and the mortgage needs to be repaid, many of these clients find they may be retired with much lower income and a normal mortgage is not passing lender affordability. Equity release is ideal for these clients as there are no income or affordability checks.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
There are a few different reasons why people approach us to arrange Equity Release. The two most common reasons are:

1) They have an interest only mortgage which they never managed to pay off and are too old for a traditional mortgage.

2) They want to release money to give to their children so that they can help them out during their lifetime rather than upon their death. They would like to give with a warm hand rather than a cold hand.

However, we have seen an increase in enquiries from those looking to raise money as they struggle to cope with the cost of living. We often set this up on a drawdown basis, so that they can take what they need on an annual basis rather than having to take it all on day one and pay a huge amount of interest
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Dan Osman
Head of Later Life Lending (Age 55+) at UK Moneyman
Our later life team has seen a sharp decline in aspirational borrowing either through client choice or by being advised to wait. There will always be clients whose priorities are objective rather than rate/value driven but even those are more willing to consider taking equity release on a drawdown basis to minimise initial borrowing to either take advantage of better rates for their drawdown funds or to make re-broking in the event of significant rate decreases more of a practical option. In a lot of cases at the moment, where affordability exists, we are also seeing clients being open to an interest only/repayment/split product to meet their initial needs with ongoing reviews planned at the outset to look at lifetime mortgage options or other later life products further down the line. This not only keeps the client's options open but preserves equity at least in the short term. It is as important as ever to listen to the question before assuming equity release is the answer.

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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
When I see clients that I feel are best severed by a referral to a lifetime mortgage specialist, they generally fall into one of three camps; those that need a lump sum of cash for something aspirational like a new kitchen or extension, those that are coming to the end of an interest-only mortgage and haven't the means to repay the debt at the end of the term, and then those who's pension is not adequate to give them a comfortable retirement. Whilst the first group will always remain relatively constant, the second group will become smaller and smaller (as interest-only mortgages are much more tightly regulated and controlled now and have been for a while), but alarmingly the third group is most likely to rise - with final salary pensions becoming the preserve of just the public sector and those with money purchase/defined contribution schemes, especially pre-auto enrollment, didn't save enough into them to deliver the level of income needed to fund the retirement they'd like.