More than £32.6 billion of property wealth was released via 557,000 plans over the past 20 years as the modern equity release market evolved with flexible options for customers to access the money tied up in their homes.
Advisers have a wide range of plans to base their recommendations on. Features such as capital or interest repayments and downsizing and inheritance protection offer customers the opportunity to manage their borrowing according to their circumstances. The introduction of fixed early redemption charges also made it easier for customers to switch plans to make savings or raise more cash.
Against this background, Key conducted research for its Equity Release Revolution report – the first comprehensive study into the experience of customers over the past 20 years. Speaking to over 600 people who had taken out these products, the aim was to understand not only how the average customer profile was changing, but also what the long-term impact was on customers’ financial and general wellbeing.
The typical equity release customer
On average they are getting slightly older – in 2008 the average customer was 68; today they are around 70. While younger customers look to equity release for mortgage or debt repayment – a priority during periods of economic instability such as the current pandemic – older customers look to more discretionary spending when consumer confidence is high.
Most plans are taken out by couples (around 59%). 27% were taken out by single women and 14% by single men. Equity release appears to be more of a financial lifeline for single women who may be widowed or divorced and consequently struggling with meeting living costs on a lower retirement income.
The average customer now takes out a plan against a house worth £366,660 – nearly 60% higher than the value of the average UK house (£232,134) and 56% more valuable than the average house used for equity release in 2008. Average UK house prices have increased 27% over the same period. Equity release is demonstrably being used more by the mass affluent, challenging the view that it is a product of last resort and instead confirming its place as a normal part of financing later life.
What has equity release been like for them?
The customer view is that equity release has been good for them – 67% say it made a major contribution to their quality of life while 47% have recommended it to others. Another 43% say they would recommend it, meaning 90% of customers questioned were happy to recommend equity release – a great endorsement for any industry.
But, of course, not everything is perfect. Some customers have regrets about taking out equity release. While our research found 56% of customers had no regrets about their decision, some were less positive – any issues are typically related to individual circumstances rather than as a result of more systemic problems with products or advice.
Around 15% say they regret leaving a reduced inheritance as a result of their decision while 12% wished they did not have to borrow in later life. One in 10 (12%) said their only regret was they were not able to borrow more. Just 4% wished products had been more flexible – rising to 23% among those who had taken out plans 12 years or more ago.
Finally, 21% said that they took out equity release because there were no alternatives at the time – thankfully something which is likely to be far less common as choices offered by an expanding later life lending market continue to go from strength to strength.
Moving and families
Traditional criticisms of equity release were not borne out by the study. Moving home was not an issue for most customers. Only 8% said taking out equity release had restricted their house moving options.
Most have involved family in the decision. 64% said they discussed their plans before going ahead, while 29% said it was no one else’s business. Just 6% avoided the discussion because they expected opposition or were worried family would feel guilty as the cash would be used to help them.
The next 20 years
While this has been a whistle-stop tour through a report that also includes insight from advisers who have seen the sector develop, as well as an in-depth look at product evolution, one clear thread has emerged.
Customers who have received specialist equity release advice are generally happy with the decision they made and how the product has worked for them. Equity release has provided financial security, reduced retirement worries and helped many customers achieve their wants and needs in later life. These customers are advocates for the industry and they have often recommended the option to friends and family.
For a product that is too often maligned this is quite an endorsement. Having delivered a revolution over the past 20 years, it is now time for an evolution over the next 20.
Will Hale is CEO at Key