Equity release products have evolved drastically over the last decade and yet, in order to achieve mainstream acceptance, argues Andrea Rozario, the sector must also evolve the way these products are presented.
Equity release has been enjoying a real renaissance in recent years. Annual lending figures are growing while increasing numbers of homeowners are accessing their housing wealth – and this success has been down to the speedy evolution of the lifetime mortgage.
In the past decade alone, lifetime mortgages have changed and improved drastically, and the state of modern equity release is, in my view at least, stronger than it has ever been. And yet, equity release is still seen in simplistic terms by many and rejected far too swiftly. To counter this we must make it clear how the products have changed.
The days when the lump sum option completely dominated the market are gone and we now see a healthy split between drawdown and lump sum. According to the Equity Release Council, drawdown products accounted for £59.91 of every £100 unlocked in the second half of 2015, while £39.59 of the same £100 was accessed via lump sum. For the record, the remaining 50p was made up by the lesser-spotted home reversion policy.
This evolution of equity release has created the choice that is essential in fostering a healthy marketplace. The lifetime mortgage can now assist in a great number of instances, which is being borne out in the statistics as younger customers plump for the lump sum option while older borrowers go for drawdown.
The Equity Release Council explains: “During the second half of 2015, those aged 55 to 64 bucked the overall trend, with the majority [54.5%] opting for lump sum products, giving them a bulk release of housing wealth, which is often used to meet one-off costs. From 75 onwards, four out of every five plans agreed are drawdown plans as customers take an initial sum in later life while reserving an amount to draw down in stages as the need arises.”
These numbers clearly show equity release is helping both younger and older retirees have the retirement they deserve. If a large one-off cost needs to be dealt with – for example, an interest-only mortgage shortfall or large home improvement – the lump sum option is ready and able to help.
And, if it is more a case of receiving regular boosts to income to make the day-to-day experience of retirement that much easier, the drawdown option is available. This point alone is proof enough that products in the equity release stable are good options for many retirees – and yet we are still written-off by many outside the industry and lots of new customers are completely unaware of these facts.
What is more, the evolution of equity release has also pressed on into new territory in recent years with the arrival of interest-paying products. One of the most well-known features of most lifetime mortgages is the fact interest does not have to be paid and is ‘rolled-up’ over the years.
Lenders are now even turning this on its head, however, by offering customers the chance to pay some or all of their interest. This can save customers tens of thousands over the long-run and adds yet more flexibility to the growing stable of equity release products.
Growing customer base
Ultimately, lifetime mortgages have modernised and changed over recent years to meet the needs of our growing customer base, and that is fantastic to see. We can always do more, however, and new features should be added as the various needs of our customer base increase.
Yet, despite the evolution of the lifetime mortgage, much of the public remain confused about what lifetime mortgages really are and how equity release can help them in retirement, and this confusion is not helped by naysayers who reject equity release without considering this recent product evolution.
Instances of new customers being ill-informed are still far too high and, even though equity release has changed so much over the years, few customers are clued up on the modern market before they meet with an adviser. To battle this we should consider a comprehensive in-house revolution of the way we present our products and explain the journey equity release has been on.
Jargon must be avoided at all costs and we should all discover new and fresh ways to explain how equity release can help homeowners achieve their retirement goals. Equity release products have evolved and modernised drastically in the last decade but, to achieve mainstream acceptance, the sector must also evolve and modernise the way it presents these products.
Andrea Rozario is chief corporate officer at Bower Retirement Services