Necessity is the mother of invention, as the saying goes, and this has certainly been the case for the equity release market. Consumer demand for later life lending has soared over the past decade, with the amount borrowed by homeowners increasing almost four-fold between 2009 and 2019.
At the same time, the number of equity release options on offer has set records and, while the pandemic has undoubtedly thrown up some challenges, the market has proved resilient: homeowners released nearly £2 billion in equity from their homes in the first half of this year – up 32% on the same period of 2020.
Advisers are optimistic for the year ahead. Research carried out by more2life found that 94% feel positive about what 2022 holds for the market, compared to less than three quarters (71%) who feel the same about the residential property market. Advisers are also optimistic about the prospects for their own business, as the changing landscape makes later life products an increasingly attractive alternative to traditional forms of borrowing.
The market in 2021
It’s no great secret that today’s generation of retirees face a longer and more active retirement than their predecessors, with the number of centenarians in the UK increasing by 85% over the last 15 years. The pandemic has also caused a shift in dynamics, with many over-65s forced into retirement earlier than planned, prompting concern over the longer-term effect on savings and pensions.
With a vast number of retirees now facing the very real risk of running out of money in later life and tasked with making more complex decisions than the generations before them, the combination of lower equity release interest rates and an abundance of product choice is good news.
But the industry must not rest on its laurels – as the needs of older homeowners grow, lenders must continue to adapt, and product innovation will be key. In fact, our research found that more than half (54%) of advisers believe further innovation in the market will be the most beneficial factor to their business over the next 12 months.
Innovations in the pipeline
With consumers coming to expect personalised experiences across pretty much all areas of their lives, from the way they shop to the TV they watch, the equity release market needs to keep pace, delivering solutions that are tailored to their customers’ individual circumstances. Top of advisers’ wish list is the development of a mortgage that turns into equity release at the customer’s request.
Meanwhile, a fifth (21%) of advisers believe that later life lending products that allow regular, small drawdowns to pay for everyday retirement costs is a development that older borrowers would most like to see. A key feature of the equity release market over the last year has been drawdown plans, with this type of product taken out by 72% of new customers in the first half of 2021. Clearly, more and more customers want the option of releasing smaller sums of cash more regularly so it’s likely we will continue to see lenders develop and launch more types of these products going forward.
With property wealth emerging as much more than a ‘last resort’, advisers also expect to see a more holistic approach to advice take precedence, with equity release increasingly being considered alongside pensions as part of customers’ wider retirement planning.
Planning for 2022
But in order to sustain this momentum, it’s crucial that equity release providers offer the support advisers need. More than a fifth (22%) of advisers said greater support from providers would be beneficial to their business over the next year, while more than a third (35%) cited lender criteria as a major challenge for the industry over the next 12 months. As the market continues to evolve, it’s important that lenders ensure that different age groups and life stages are catered to.
It’s also vitally important that the industry raises consumer awareness around equity release. Almost half (47%) of advisers admitted that a lack of consumer education around the sector poses the biggest challenge, suggesting there needs to be a greater focus on highlighting the benefits and dispelling the misconceptions around equity release.
The world is changing and as people face the reality of longer life expectancy, insufficient pension savings and greater property wealth, it’s clear that advisers have much to feel positive about, with the future with the market set to be stronger and more competitive than ever before.
Stuart Wilson is corporate marketing director at more2Life