Equity Release: current success and future challenges

The Equity Release industry has been one of the real success stories of the mortgage market over the past few years. We broke the billion barrier in 2013, set a new record of £1.4 billion in total lending last year and 2015 looks set to be yet another record-breaking 12 months. The impressive growth of the industry has signalled our intent to break into the mainstream, but what are the main drivers behind this success? And what could possibly stand in the way of future growth?

A Recipe for Success

For many retirees, entering into post-work life is a worry. Money troubles and stress beset millions of older people as many come to realise that they haven’t saved enough for a retirement that will last longer than they expect. Bower Retirement Services’ analysis of the Office of National Statistics’ wealth and assets survey shows that as many as 34% of retirees aged 65 to 74 have no private pension wealth whatsoever, and this figure rises to 37% as people move into old age. What’s more, with the average 65 year old man living another 18 years and the average 65 year old woman another 21, pension pots will run dry and many could enter into poverty in later life. Luckily, however, this same generation also controls an enormous amount of personal housing wealth – nearly £1 trillion nationwide. As a result of retirement lasting longer than ever before and pensions running dry during life, the appeal of converting housing wealth into tangible, tax-free cash is increasing all the time.

Couple the above factors with the current state of the UK housing market and the appeal of Equity Release increases more so. The plight of the first time buyer dominates the conversation but the issue of the last time buyer is often ignored. There is a serious lack of suitable housing for the retired to trade down into and, therefore, many homeowner’s are turning to Equity Release as an alternative that can provide them with the money they need but will not result in them having to move from the house they have come to love.

Equity Release is being accessed by homeowners aged 55 and over in record numbers because of shortages: a shortage of retirement income and a shortage of suitable retirement housing.

Ongoing Battles

Despite experiencing some 5 years of growth and record-breaking year after year, the Equity Release industry continues to fight against the myths that hang over us like a dark cloud. The sky is brightening and the cloud is beginning to dissipate somewhat, but there remain some inaccurate beliefs that continue to be troubling prevalent. Time and again Bower meet clients who say they think Equity Release will result in them losing their home; that their beneficiaries will be left with a debt to repay; or how they will be forced into selling their home to the provider.

These attitudes have been facilitated by erroneous stories in the national media that play on the past that Equity Release has fought so hard to leave behind. The lifetime mortgage never results in a loss of ownership, modern Equity Release products are strictly regulated and safeguards like the ‘no negative equity guarantee’ continually protect the customer and their beneficiaries.

We must, as an industry, continue our battle against the often unfounded media reporting relating to our industry, and we must continue to lobby Government to allow Equity Release to take its place amongst the mainstream mortgage market – discussions about housing wealth in the Pension Wise meetings would be a start – and then the attitudes of the retired will continue to shift in favour of seeing lending in retirement as a valuable, often essential, financial lifeline.