FUNDING LATER LIFE
Equity release borrowing has been booming in recent years and is not expected to slow down any time soon; much to the contrary in fact. Figures from the Equity Release Council revealed that Q 1 2020 saw £1.06bn of property wealth being accessed in this way, up by 14% from a year earlier. Though we do not yet know the full impact of the Covid-19 crisis and what the looming global financial recession will have on these figures, we do expect the space to continue to thrive – something the entire industry will be praying for. Afterall, this is one of the very few areas of lending that can have a huge impact on the rest of the mortgage market.
There is a plethora of reasons for the popularity surge in equity release, and in particular for taking out ‘later life mortgages’, which range from life expectancy being on an upward trend, people earning later into life and needing to fund later life care, to low interest rates, pension top ups and helping loved ones get on to the property ladder.
The idea that those working later in life had insufficient pension pots to warrant retirement is nothing new; these fears have been swirling around long before Covid-19 swept across the world. What the pandemic has done is simply exacerbate an already worrying situation. The first quarter of this year saw a 15.2% drop in the average pension fund due to the fall in global stock markets. According to research from Legal & General, 1.5 million workers over the age of 50 plan to put off retirement as a direct result of the financial impact thwarted on them by the pandemic. A stark and worrying figure; surely, we will see an upsurge in releasing equity from property to help top up these pensions and allow hard working individuals to retire and enjoy their golden years? Afterall, since the pensions revolution, people are well versed in handling their whole portfolio of financial assets.
Let’s also not forget about the Bank of Mum and Dad (BoMAD) – an almost top 10 lender in itself. It is near impossible for first time buyers to get on to the property ladder without any financial help from family. There are an increasing number of ‘children’ living with parents way into adulthood or renting themselves out of the chance to save for a deposit. With fewer higher LTV products available in the market right now, mortgage affordability tightening, and first-time buyers joining the property market later in life, equity release provides an opportunity for family members to directly help. Afterall, there is less need today to leave properties directly in wills compared to times when life expectancy was lower; for many it makes much more sense to tap in to the will early to help those first time buyers climb that first echelon.
The puzzle of how best to manage later life finances and give breathing space to retirees, who may need to release some cash from assets, has been a headache for financiers around the world for years. The three traditional stages of life – grow up, work, grow old – seem to no longer apply in today’s environment. Luckily, mortgages are adapting, as are other financial products. Take the new lenders entering the space as proof of the opportunities out there for investment – for example those offering multiple borrowers to invest or support a first time buyer with affordability and house purchase without needing to ask BoMAD to release any equity.
Only time will tell how hard the looming financial crash will hit us. Equity release will no doubt be used more and more to support people getting onto the property ladder, as well as topping up gaps in pensions, and paying for holidays, home renovations and lifestyle changes. This is no bad thing – unlocking capital tied up in a home when needed stimulates most sectors. With the economy the way it is, the money locked in property is going to become increasingly valuable.
A post Covid-19 world will surely look very different to what we are used to. At least with equity release, and other such products, those at one end of the property ladder are able to support those at the other whilst keeping the mortgage sector moving.
Phil Bailey is sales director at mortgage technology provider Twenty7Tec