Retirees looking for ways to supplement a shortfall in pension income will be behind major growth in demand for specialist home equity withdrawal advice in the coming years, according to Just Retirement.
The firm commissioned an in-depth study into consumer attitudes towards home equity withdrawal to help inform the ongoing policy debate into how the housing wealth built up during working lives can best be deployed during retirement.
The report – The Role of Home Equity in Retirement Planning – highlights the size of the gap between the income those approaching retirement expect and what they are likely to receive.
Just Retirement claims is the largest study of its kind with more than 300 hours of interviews conducted face-to-face and by phone with a representative sample of homeowners aged over 55.
It proposes ways the government and equity release industry can co-operate with other stakeholders such as financial advisers and the third sector to promote innovation, education and confidence in equity release solutions.
“This study clearly shows how today’s retirees are facing a major challenge of how to generate sufficient income and could benefit from professional help,” said Stephen Lowe, group director of external affairs and customer insight at Just Retirement.
“Advice has a crucial role because it helps overcome misconceptions about how equity release works and highlights the consumer safeguards in place. At the moment people don’t know about it – nine in 10 can’t name a provider and more than four in 10 don’t know where to seek advice.”
The report reveals the huge potential for advisers to talk to wealthier clients about using equity release as part of their total retirement plan. Of those in social classes A and B, 3% had already bought plans. And 29% had heard about equity release in a positive way.
“Looking at those with homes valued at £250,000-£500,000, we found only 2% actually had plans,” said Lowe. “But it also showed that a further 28% of homeowners had heard positive things about equity release, and 32% simply had heard of the concept but didn’t know the detail.
“That seems like a huge opportunity for financial advisers to engage with a group who have significant housing assets. It is estimated that about 84% of homeowners in their 60s and 70s own their own homes and the majority have at least £200,000 housing equity.”
“Increasingly the policy debate has started to focus on housing equity withdrawal as part of the solution to funding individual’s retirement needs, particularly in complex areas such as how people can pay the costs of long-term care,” said Lowe.
“From the point of view of professional advisers, there is set to be rapidly growing demand for ways to help these ‘asset rich, income poor’ consumers to find the liquidity they need to pay their day-to-day bills.”
While six in 10 individuals in the study said they would not sacrifice their own lifestyle to make sure they leave money to family, more than half supported the idea of gifting money to future generations while still alive. People are also concerned about how they may be forced to sell their homes to pay care costs.
And although most of the homeowners questioned were aware of downsizing as a way to release the value tied up in their homes people also recognised this could result in high financial costs as well as the emotional costs of leaving homes and neighbourhoods.
“The survey shows that people approaching retirement – between one and five years out – are keener on the idea of selling up at some point than those who are actually retired and closer to making the decision,” said Lowe. “More than half of the younger group said they would rather downsize than use equity release but this fell to just over a third of those in retirement.”
He said that professional advisers had a key role to play in helping to promote equity release as an alternative way for people to use their housing wealth to generate the extra income while still remaining in their own homes.
While Lowe recognised the work of Safe Home Income Plans (SHIP) and its successor, the Equity Release Council, for the work done to improve consumer safeguards and promote education, he acknowledged more needed to be done quickly.
“The equity release market currently only reaches a small proportion of those who could benefit. This report calls on the government and industry to work together to give people the knowledge and confidence to consider using these products as part of the solution to managing financial commitments later in life.
“The arrival of hundreds of thousands of income-depressed baby boomers, many of whom will still need to make mortgage repayments in retirement, creates significant demand for professional financial advice. Advisers are increasingly showing people how they can top up their retirement income through careful and considered use of all of their assets, including their home.”