Young blood: Why equity release is attracting atypical clients

Retirement is longer than ever but equity release is always there, writes Andrea Rozario

Most equity release products are accessed by those aged 65 to 74, with the overall average falling just above the 70 mark.

So, it is reasonable to suggest that most people are accessing their property wealth via a lifetime mortgage in the early years of their retirement.

However, recent findings from the Equity Release Council’s Spring Market Report have revealed that those at the periphery of this core 65 to 74-year-old group are tapping into their housing wealth like never before.

According to the report, the second half of 2015 marked the strongest growth in lending activity since 2008.

Property prices

Much of this growth can be put down to the consistent increases in house prices up and down the country as more over 55s are seeing their biggest asset, their home, grow and grow in value; however, what is particularly interesting is that there has been a notable increase in the growth amongst those aged 55 to 64 and those aged 85 and over.

These age groups do not represent the stereotypical lifetime mortgage customer, and yet they are on the rise. This increased interest from those outside the typical ‘early retirement’ borrower should not be ignored, glazed over or seen as some kind of statistical aberration. It is important.

Lifetime mortgage customers aged 55 to 64 represented 17.5% of all customers in H1 2015, but by H2 2015 they represented 21.2% of all customers.

For the 85 and over cohort, the numbers are smaller but the proportional increase far greater: 3% of plans agreed in H1 2015 rose to nearly double that, 5.9% to be exact, just 6 months later in H2 2015.

The figures are testament to a claim that myself, other industry commentators, the council and many more involved in equity release have been making for some time: the lifetime mortgage is a very versatile product.

Interest-only shortfalls

For the 55 to 64 age group, the lifetime mortgage is being accessed for a number of reasons, but the most critical may be the use of housing wealth to pay off mortgages, especially interest-only shortfalls.

With some 260,000 people having no strategy in place to repay their interest-only mortgage, many approaching retirement are experiencing great amounts of financial stress and worry because of their approaching repayments.

The lifetime mortgage is being accessed as a way to meet these shortfalls which are often substantial – around half of those without a strategy to repay will be staring at a £50,000 shortfall.

The financial implications of this ability to repay what is likely the biggest debt most will ever accrue, are obvious – but the emotional implications are often overlooked.

Many clients who we serve at Bower Retirement are thrilled that there is a product on the market that can allow them to meet their repayment whilst also ensuring that no immediate interest repayments are needed. Other than the products in the equity release stable, there is no other product on the market that can allow people to do this.

Living longer

Turning to the 85+ cohort, it has become abundantly clear to everyone that retirement is getting longer and longer. The UK’s life expectancy is now a shade over 80, and in under 50 years, the average woman will reach three digits. All good news, right?

Well, despite the fact that life expectancy has been growing for decades, and the fact that we hear about this growth time and again, few people seem to believe it!

The financial calculations everyone in retirement have to do are fundamentally linked to the question: ‘How long am I going to live?’

Perhaps it is typical British modesty, but so many people underestimate how long they will live and the financial consequences can be borderline catastrophic in later life.

Luckily, however, the lifetime mortgage, being the versatile product it is, can also meet the needs of those in later life.

With the average 85-year-old homeowner owning their home with no mortgage, and with said home most likely being worth more than they paid for it, the allure of tapping into housing wealth with a lifetime mortgage could possibly be stronger than at any point in life, and thus the lifetime mortgage is solidifying its claim to be a versatile product that can help a broad cross-section of society.

However as always, advice and customer understanding of the risks, as well as the benefits, are essential.