Equity release review

The value of property in a cost-of-living crunch

Alice Watson

head of marketing – insurance, Canada Life

No one is immune to feeling the financial pressures caused by the rising cost of living. Across the country many people will be sitting down, taking stock of where their wealth lies, and identifying which levers they might be able to pull. This is where advisers can play an essential role in navigating a path through this potentially difficult time. A trained professional will be able to spot opportunities while understanding the long-term goals of their clients and recommend a course of action that may otherwise have gone unnoticed.

For some people this may include looking at their property wealth in a new way. Canada Life analysis of the property wealth amongst the over-55s across England, Scotland, and Wales found that there was over £800bn of equity available for release in Q2 of this year. This is a record level driven by steadily increasing property values. Perhaps unsurprisingly, homeowners in the South East and London have the greatest amount of equity available to them. However, homes in the North West have seen the greatest jump in property prices, increasing by 4.8 per cent in Q2.

This environment of high property values feeds into the latest statistical update from the Equity Release Council, which found that £1.6bn of property wealth was withdrawn in Q2, equating to around 205 new plans being agreed each working day. This follows the improved flexibility of the council’s fifth product standard, which mandates that all new plans in Q2 come with the option to make penalty-free partial repayments when affordable, allowing customers to reduce their future interest costs with no requirement to make ongoing repayments.

Interestingly, the data also shows growing interest in lump-sum products, which have overtaken drawdown to become the most popular option among new customers. This could be driven by people looking to clear their existing mortgage at time of maturity or seeking to support a loved one’s deposit for their first home. This supports the findings of Canada Life’s ‘customer reasons for loan’ data, which finds that the most popular reason for releasing equity is to pay off an existing mortgage, accounting for half of applications. This was followed by raising money to pay for home improvements (38 per cent) and supporting day-to-day living costs (20 per cent). Releasing equity to gift to family or friends was also popular among customers, with 15 per cent choosing to release equity for this purpose. This may be to help loved ones onto the property ladder or to help support care costs. Alongside these needsdriven reasons for releasing equity, we are still seeing customers use equity release to make substantial one-off purchases such as booking a holiday (14 per cent), buying a new property (12 per cent), or buying a car (10 per cent).

All this simply highlights the real-world applications of equity release and how property wealth can be used flexibly and effectively. External pressures from rising inflation are unlikely to lessen any time soon, so it’s essential that advisers should feel comfortable advising on equity release and, where appropriate, recommending a product type that will best suit their clients’ needs and long-term goals. M I