Equity Release Mortgages
In the 2019/2020 period, a significant 86% of initial pension withdrawals were from pots valued at less than £10,000. Even with access to a full state pension, this may lead to financial strain, especially considering that the Pension & Lifetime Saving Association’s ‘Retirement Living Standards’ suggests a single person needs over £10,200 to meet basic needs. Individuals must explore additional avenues to augment their income to achieve a more secure and enjoyable retirement.
In the United Kingdom, the accumulated property wealth of those over 50 is estimated at £3.8 trillion, with 74% of individuals aged 55 and above owning their homes. Despite modest pension pot sizes, homeowners in or approaching retirement have likely experienced recent growth in their property values, with a 13.2% increase in the past year alone.
Research from The Office for National Statistics indicates that the average property value is now £266,000. Leveraging property wealth through products like equity release mortgages, such as our lifetime mortgages with a median Loan-to-Value (LTV) ratio of just under 25%, could provide homeowners with over £60,000.
This sum can supplement daily living expenses and stimulate economic growth. We estimate that for every £1 released via a lifetime mortgage, it generates £2.34 of economic growth, amounting to an overall impact of £2.4 billion annually.
Equity release mortgages, customers utilise the funds for various purposes, supporting diverse sectors. Whether it’s buying a new car, funding a vacation, or covering care expenses, accessing property wealth contributes significantly to job creation and industry growth. Home improvements, a popular reason for opting for a lifetime mortgage (41%), inject £1.34 billion into the manufacturing sector and provide a £349 million boost to construction. Some customers also make long-term enhancements, such as energy-efficient improvements that reduce CO2 emissions, addressing the housing sector’s environmental impact.
Beyond economic contributions, equity release mortgages help address societal disparities. While concerns have been raised about older generations accumulating housing wealth, many use this wealth to assist younger family members with housing deposits, contributing to a cultural shift where homes are viewed as assets. This helps loved ones overcome financial hurdles and can lead to greater societal benefits than having wealth tied up in property.
In 2021, 17% of Legal & General customers accessed their equity specifically to gift to loved ones, emphasizing the evolving role of property wealth. Although equity release mortgages have gained acceptance, some potential customers remain unaware of their flexibility and broader benefits. As property wealth continues to gain recognition, we expect lifetime mortgages to transition from a ‘specialist’ option to a standard consideration, among other retirement products.
Looking ahead, we anticipate market evolution to better cater to diverse consumer needs, whether through innovations enhancing the quality of life, supporting loved ones, or incorporating ‘green’ improvements for a more sustainable impact. As people live longer, tapping into property wealth will increasingly become a vital consideration in achieving financial goals and fulfilling the retirement aspirations of individuals.
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