Property is key to financial planning, yet customer understanding of equity release falls

Rebecca Kirk - Market Research Assistant

Published on December 12th 2019

As the end of 2019’s final quarter approaches, a number of reoccurring themes in the equity release market have emerged.

Customers have expressed clear product preferences, with the majority of lifetime mortgages being sold on a drawdown basis in 2019, and advisers have expressed little surprise at the news that just 548 retirement interest-only mortgages (RIOs) had been taken out by 1 July this year. Whilst RIOs offer the option for older customers to renew their interest only mortgage, customers seem to favour the flexibility offered by drawdown lifetime mortgages products. However, there is a growing knowledge gap with 15% of UK homeowners stating that they would not use equity release as they do not understand it – a three-fold increase from 2016 (5%).

Property is increasingly being viewed by customers as a central to their retirement planning, with research suggesting that over half of UK homeowners believe their pension pot is worth significantly less than their home. 25% of homeowners of all age groups have used, or are using their property as source of additional income, such as through re-mortgaging or taking in a lodger, placing equity release as just part of wider shift towards property centred financial planning.

Household debt is on the rise in the UK and this likely to be contributing to consumers prioritising property within their financial planning, with a significant portion of equity release customers accessing funds to allow them to clear existing mortgage debt or consolidate unsecured debts. In addition, research has found that over a third of those aged 55-plus are living beyond their means and almost half say they do not have sufficient savings to be able to cover an unexpected bill of £5000.

Women are releasing equity at a greater rate than men, with single women taking out almost double the number of plans than single men in the first half of 2019. One reason for this is likely to be the gender pension gap, with significant portions of women with little to no private pension savings and despite the Office for National Statistics’ prediction that women are more likely than men to live to the age of 100, 36% of women over 50 told a survey that they did not believe they will have sufficient income in retirement.

This year’s trends suggest that finances are a key area of concern for customers and that they value products with the flexibility to suit their needs. Drawdown lifetime mortgages are the product success story of the year, but with consumers increasingly looking towards property to ease their financial concerns, it is essential that the industry continues to educate customers about their options and to provide products which meet their needs.

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