Mortgage Finance Gazette – The potential social impact of equity release

Lifetime mortgages have been growing in popularity in recent years, with a wide range of products and options to help customers meet a variety of financial needs and goals.

In 2019/2020, 86% of pension pots accessed for the first time had a value of less than £10,000. Even if someone was able to access a full state pension alongside this amount, this could leave them financially stretched. We know from the Pension & Lifetime Saving Association’s ‘Retirement Living Standards’ that a single person would need more than £10,200 just to reach the minimum threshold required to meet their needs. For those who’d like to take full advantage of their retirement, be that enjoy more financial security or indulge in occasional luxuries like holidays abroad, finding other ways to boost retirement income will be essential.

In the UK, the total property wealth among the over 50s is estimated to be £3.8tn, with three quarters (74%) of those aged 55 and over owning their own home. While their average pension pot size may be low, homeowners in or nearing retirement will have likely seen their property wealth grow in recent years. In the last year alone, UK homeowners have seen an increase of 13.2% in the value of their homes.

Research from The Office for National Statistics shows that the average property is now worth £266,000. These increases mean that property wealth, accessed through products like equity release, can lead to a marked improvement on the quality of life of people in retirement. Our lifetime mortgages provide a median LTV of a little under 25%. If the average homeowner were to access this, they would receive more than £60,000. This could be used to supplement their day-to-day living, but we also see many customers use it in a way that benefits not only them, but the wider economy.

Customers who take advantage of equity release use the money for a variety of things which, as a result, support a range of sectors. From buying a new car, taking a holiday or paying for care, accessing this property wealth supports a huge variety of jobs and industries. We estimate that for every £1 released via a lifetime mortgage, it generates £2.34 of economic growth; an overall impact of £2.4bn a year.

For instance, home improvements, one of the most popular reasons that people take out a lifetime mortgage (41%), contribute £1.34bn to the manufacturing sector and give a £349m boost to the construction sector. In some cases, we also see customers making improvements that improve UK housing stock for the long-term, such as better insulation that can reduce CO2 emissions. With residential housing currently the third-largest contributor to CO2 emissions, energy efficient improvements of this nature provide a real societal benefit and leaves a positive legacy for future generations.

By taking out a lifetime mortgage, customers often help to address other disparities in our society. While much has been made of the accumulation of housing wealth amongst older generations, in many cases that wealth serves youngers generations, too. The ongoing challenge faced by younger potential homeowners trying to get on the property ladder is well documented, but equally, parents and grandparents are increasingly accessing their own property wealth to help their loved ones get over the hurdle of the deposit.

This has become more popular as older family members live longer and want to see their family benefit from their support when they need it most. We are witnessing the beginning of a cultural shift, where more people are beginning to view the home as an asset. With many families often having to sell the homes of their loved ones upon death, there is an argument that using equity release in this way could reap greater societal benefit rather than it being tied up in a house. Accessing property wealth isn’t always just for initial housing deposits; we often see relatives gifting to relatives to help pay for a wedding, or buy a bigger family home. In 2021, one in six Legal & General customers (17%) accessed their equity with the express purpose of gifting to loved ones.

In recent years, people have become more accepting of the concept of equity release, which has helped the market grow. However, many potential customers are still unaware of the product’s flexibility and the broader benefits this can have both for individuals and wider society.

We anticipate that as more people see the value in their property wealth increase, lifetime mortgages will cease to be seen as a ‘specialist’ option and instead become a more standard consideration amongst other at-retirement products. Looking ahead, we anticipate that products on the market will evolve to better serve the diversity of consumer needs, whether it’s innovation that helps people improve their quality of life, support their loved ones or ‘green’ improvements to help better manage their impact on the world around them. The home is a vital part of an estate and is often an individual’s largest asset. As people are living longer, accessing property wealth will become an increasingly important consideration to help meet financial goals and fund the retirement they dream of.

Credits: Mortgage Finance Gazette