Those of us that work in the equity release industry are fully aware of the sector’s untapped potential, but recent figures published by the Office for National Statistics (ONS) have revealed just how small a percentage of this capacity is being utilised. The Household Wealth Index also highlighted the growing gulf between funds that older homeowners are able to access in terms of pensions and the money they have tied up in their property, with two-thirds of over-65 households having accrued more than £100,000 of property wealth, but just 40% having the same amount within a pension pot.
This disparity is perhaps not too surprising given a number of factors – chief among them the British obsession with prioritising property purchase above all else, not to mention dwindling pensions – but the ONS findings once again serve as a reminder of how many older homeowners are heading into retirement with insufficient funding. More worrying still is that the incomes often quoted to be able to sustain individuals through retirement usually only account for maintaining one’s standard of living and don’t take into consideration all eventualities such as illness and care needs.
Of course, just because older homeowners have wealth tied up in their properties it doesn’t necessarily mean they have to utilise it, but it is certainly an option worth considering if pensions or other incomes aren’t sufficient. Indeed, with seemingly never-ending coverage of the number of mature individuals carrying debts into retirement while also sitting on sizeable property wealth, then releasing part or all of this equity begins to make more sense.
It is not just the UK that seems to suffer from this failure to match a ready-made solution with what is a growing problem. A report published by global professional services company Towers Watson entitled Accessing housing wealth in retirement warned that current Solvency II proposals could stifle equity release competition and innovation across Europe if equity release assets aren’t included in funding calculations. While domestic reaction to the report agrees with this conclusion, it also highlights how countries such as Germany, France and Sweden are currently experiencing something of an under-utilisation of equity release plans and how increased take-up could benefit older homeowners in such countries even more than their British counterparts.
While in some respects it is heartening to know our equity release market is not alone in fighting the battles of consumer and political awareness, it is also disconcerting to know that a simple directive could impact on pensioner income in future decades across a whole continent. We have seen how the mainstream mortgage market has had to conform with various European directives over the years and the last thing the equity release market needs is to be adversely affected by any mooted measures, especially when there is such tangible demand for it.
Hopefully there will soon come a tipping point when the sheer volume of research and reports identifying the potential benefits of equity release and the concurrent financial problems facing older homeowners sets off a light bulb both in the minds of consumers and government alike, but until then we can only champion the cause and hope a wide audience takes note.
Chris Prior is manager, sales and distribution at Bridgewater Equity Release