Asset rich, cash poor – could equity release be the answer for today’s retirees?

Gareth Ware - Senior Comms & Editorial Executive

Published on 14th October 2020

After the understandably muted figures to come out of the Equity Release Council which showed a considerable quarter-on-quarter drop in both customer numbers and lending totals from the start of 2020, there does appear to be signs of a gradual recovery, with a slight June uptick in the ERC's figures, and brokers reporting year-on-year increases in activity. This has included Responsible Life, who chalked up a 52% rise in equity release plans sold compared to the same point last year.

The wider market has helped itself continue to be both relevant and attractive to consumers through sustained innovation, even during the pandemic's challenging trading conditions. Throughout 2020 a new product has been launched on average once every 28 hours, rising from 315 at the end of 2019 to 525 at the end of this August. Additionally, the market's ongoing competitiveness has also resulted in falling rates, with the average lifetime interest rate falling 12% from 4.6% in June 2018 to 4.05% last month.

The rising tide of property wealth

These latest market developments come at a time when property could increasingly play a part in funding the retirement of over-55s going forward. Homeowners in later life have seen their homes more than double in value over the past 20 years, from an average of £113,000 in 2000 to just over £240,000 in 2020. Additionally, rises over the summer could mean that an average over-50s home could have gained over £7,000 in just two months. With forecasts suggesting a likely 14% rise across the wider housing market between August and November, property will almost certainly continue to be an increasingly important retirement planning tool for those in – or approaching – later life.

Property could likely prove to be an increasingly important pillar of people's later life planning, with the wider retirement landscape currently looking decidedly mixed. One in five surveyed believe they'll likely be repaying their mortgage in their 60s, with 5% believing they'll never pay it off. This tallies with market figures released earlier this year which showed that 40% of equity release borrowing in H1 went towards debt clearing and consolidating.

Pensions in peril?

Additionally, there has been recent cause for alarm within the pension sector, as data from the regulator has highlighted that 42% of pots were being raided at levels deemed 'unsustainable' – i.e. more than 8% was being taken out annually. Furthermore, there's also been a 5% increase in the number of pots being fully withdrawn at the first time of access.

It comes at a time when 13% of over-50s are having their retirement plans affected by the pandemic, with one in four of those surveyed being put on furlough between June and July, and one in five working fewer hours.

With property playing an increasing part in the wealth of those in later life, and the changeable landscape leaving people potentially in a situation of being asset rich and cash poor, arguably it's more important for the sector to ensure it's meeting customer needs. Based on current market development, it's been doing just that.

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