Rob Miles: Don’t leave property wealth out of retirement planning

Rapid growth in the lifetime mortgage market is creating new opportunities for wealth advisers to meet their clients' needs, writes Rob Miles, both at the point of retirement and beyond

Equity release lending reached a record £3.94bn in 2018 – an increase of 29% from the previous year – as more people turned to property wealth to meet their income needs in later life. The figures from the Equity Release Council reveal the market attracted 46,000 new customers in 2018 – a quarter more than in 2017 and a true testament to the growing appeal of equity release.

Part of the growth has been driven by the wider range of product options on offer, but there has also been a shift in the way retirement lending is viewed by consumers. Lifetime mortgages are no longer seen as a last resort option, but as a legitimate way of funding retirement.

Looking at interest rates alone, there has been a significant move over the last few years to bring the market more in line with the standard variable rates seen in the mainstream mortgage sector. In June 2014, the average equity release rate was 6.39%, while in the first half of 2018 the typical customer was securing a rate, fixed for life, at just 4.62%. The number of lifetime mortgages has also grown rapidly, rising by more than 75% in the year to August 2018.

Over the last year, we have seen lenders step up to offer much more flexibility to customers. From the rise of retirement interest-only mortgages to our own optional payment lifetime mortgage, and now equity release in the form of a regular monthly income, all these changes have opened up retirement lending to a much wider group of retirees.

Now, people are increasingly unlocking equity as a regular income that sits alongside annuities, investments and their state entitlements; or as a cash lump sum to pay for big-ticket items, such as cars or holidays, and even to gift a living inheritance to their loved ones. Don’t forget, this is a tax-free way for clients to unlock their housing wealth for retirement too.

For wealth advisers, this is an ideal time to add lifetime mortgages into their retirement planning conversations.

The growth in housing wealth among over-55s also means more people approaching and in retirement potentially have more wealth within their home – and in their pension pots now final salary schemes are no longer the norm.

In London and the South East in particular, house price rises have helped homeowners to accumulate large chunks of equity and Britain’s over-55s now hold about £1trn in housing wealth. Data from the Office for National Statistics also indicates Brits regard property as second only to their workplace pensions as the safest way to save for retirement. In short, people are now viewing property as their pension. At the same time, many retirees are realising the value of their pension is simply not enough to last a retirement that could in some cases be three decades long.

For some people, unlocking housing equity with a lifetime mortgage could help to pay for their day-to-day essentials or remain in the home they love, but for others it offers the chance to live their retirement the way they want. Whether it is setting off on a round-the-world cruise, buying their dream car or simply meals out with friends, the income stream generated by lifetime mortgages could help clients to enjoy life to the full in their later years.

There are many options to consider. Property wealth conversations are no longer limited to clients who are downsizing, or buy-to-let landlords. Instead, advisers can present clients with alternatives such as lifetime mortgages to help them use their wealth to fund their retirement goals.

Product innovation means advisers have a range of retirement lending solutions at their disposal. The number of product options available to consumers reached 139 in August 2018 – up from just 24 in 2007 – with lenders offering far greater choice and flexibility to clients.

Product launches this year have included Legal & General Home Finance’s Income Lifetime Mortgage, which pays a fixed monthly income to customers. Options like this allow property wealth to form part of the income mix for clients, helping them to enjoy life’s luxuries such as spa days with friends, treating the grandchildren or even a new kitchen.

The Income Lifetime Mortgage also comes with a ‘no negative equity’ guarantee, which means the client or their beneficiaries will never have to pay back more than the amount their property is sold for. This is provided it is sold for the best price reasonably obtainable and the client has met the terms and conditions of their lifetime mortgage.

Need for advice

Funding retirement is an increasingly complex area. It is no longer the case that a client’s income must come solely from their pension savings. Instead, property wealth could be a major source of income for many of today’s retirees. It is certainly in people’s thoughts, but equity release might not be part of a conscious retirement plan – it often takes just that simple prompt of an adviser kick-starting the conversation.

The rapid evolution of the retirement lending market, together with the fact that homes are most people’s largest asset, means independent advice is crucial. There is a real opportunity for wealth advisers to step to the fore with innovative solutions that serve all potential client needs, ensuring they make the best use of all their assets in retirement – including their property wealth.

Rob Miles is head of adviser sales at Legal & General Home Finance