70% of equity release advisers expect the market to continue to grow over the next six months, despite the short-term effect of the new pension freedoms, according to research by national equity release adviser firm Bower Retirement Services.
The latest instalment of its Quarterly Adviser Tracker reveals that advisers remain confident that the market for equity release products is set to grow over the long-term, despite retirees now having the option to drawdown some or all of their defined contribution pension pots.
Most reasons for releasing equity have remained fairly stable over the last six months, with debt consolidation the most common motivator (42%). However, the proportion of customers choosing equity release to boost inadequate pensions has more than doubled from 6% in Q4 2014 to 14% in Q1 2015. The percentage of those accessing property wealth for home improvements has dropped slightly to 15% (from 17%). The number of individuals quoting the cost of living as a reason for accessing their property wealth has dropped from 17% in Q4 2014 to just 11% in Q1 2015 – the same percentage as are using equity release to give a gift to their families.
Additionally, 60% of advisers report they are seeing younger clients enquiring about equity release. 72% involve their families in the decision-making process and advisers report that it can sometimes be the families that make the original enquiry on behalf of their parents. Those who don’t wish to involve their families in the decision are divided between those who feel it’s a personal matter for them alone (68%), and those that have fallen out with their families (32%).
Despite the large percentage of individuals involving family members in their decision, only 27% say a guaranteed inheritance is essential.
39% of older homeowners enquiring about equity release have an outstanding mortgage, although this has decreased since Q4 2014 (42%). 74% of these have their mortgages on an interest-only basis.
Having sufficient existing savings is the main reason that clients are advised against releasing equity, with 50% of advisers citing this reason in Q1. Just under 7% of customers in the past quarter were advised that they might have other options which would suit their needs better. Remortgaging and downsizing are other solutions advisers suggest to clients and 20% are told equity release is not right for them because there are better alternatives for their circumstances or there would be no real benefit.
The top feature for those opting to release property wealth is to be able to stay in their own homes as long as they wish. The next most popular is having the ability to make a partial repayment without incurring any penalties, followed by the flexibility to pay interest.
Geoff Charles, CEO of Bower Retirement Services, said: “Advisers do expect the recent introduction of the pension freedoms to have some effect on the equity release market and expectations are still that the market will continue to grow over the long term. All the discussions around what options people have in retirement is raising awareness for all types of solutions.
“We shouldn’t forget that there is a sizeable slice of people who are unable to access their pension pots, even under the new pension rules; those with final salary or ‘defined benefit’ pension schemes. For these people, who aren’t able to drawdown any part of their pension pot apart from the initial tax-free lump sum, equity release could be well worth considering, depending on their circumstances. The family members who stand to gain from an inheritance are unselfishly encouraging retirees to release their property wealth to enjoy their retirement or boost their pensions.
“While always worth careful thought, equity release is not suitable for everyone and our latest figures show that our advisers recommended 7% of clients in the last quarter – up from 5% in Q4 2014 – consider other means such as existing savings or pensions. As demand for equity release grows, it is fundamental that advisers continue to act in their clients’ best interests. This is especially crucial where the client chooses not to involve family members in their decision, either because they feel it’s entirely their personal decision or because they are estranged from their family.”
