As part of its customer application form, Bridgewater provides 15 options and asks the customer to choose the one which they plan to spend the majority of the released money on. Bridgewater has analysed its completed applications over the last three years which has revealed the top reasons why customers are opting to release equity through a home reversion plan.
The top three options chosen over the last three years were:
1. Repayment of the mortgage – in 2009 almost 30% of all customers were planning to use the released cash to do this.
2. Home improvements – this option has increased in popularity over the last three years increasing to just over 17% in 2009.
3. Other debt consolidation – the numbers using their released equity to consolidate debts fluctuated over the three years but increased to 15% last year.
Other popular reasons given for what the money would be spent on included the purchase of specific goods, for example, the popularity of purchasing a vehicle almost doubled between 2008 and 2009 with over one in ten customers choosing this option. Also 6.5% of customers intended to use the money to either buy a holiday home or property, when no-one used the money for this purpose back in 2007. Using the money to increase retirement income or enhance their lifestyle was an option with a similar level of popularity; 6.5% of customers chose this option in 2009.
Using the money to travel fell in popularity last year as did the gifting of money to others while the fact that no customers used their equity as an emergency fund or to fund long-term care in 2009 suggests the cash is often used for more short-term measures. Bridgewater, however, fully anticipates an increase in the number of individuals using equity release to fund their long-term care needs in the years ahead as state funding changes and social care policy is reviewed.
Peter Welch, head of sales and distribution at Bridgewater Equity Release, said: “As a provider of home reversion plans it is important we understand the reasons why our customers choose to release equity through their home. This is also the case for equity release advisers; by understanding the motives of the client they can best direct their marketing effort to those customers with the appropriate needs. With these results we can see that customers continue to have three main reasons for releasing equity: repayment of the mortgage, funding home improvements and debt consolidation.
“In all likelihood these three will remain as the top choices in our figures for 2010 and we may well see an even greater number of customers using their money to either repay the mortgage or their debts. The impact of the recession and Credit Crunch, particularly the scarcity of mortgage funding and lender’s own diminished appetite to lend, is likely to bite further. That said, equity is being released in greater numbers to increase retirement income and enhance a customer’s lifestyle, while a growing number are choosing to purchase vehicles and property.
“There are clearly a variety of motives behind a customer’s decision to release equity and advisers should ensure they are completely clear on their client’s needs and circumstances from the outset. Using the equity in the home to clear the mortgage and other debts will remain strong drivers for the equity release client base however products such as home reversions can provide solutions for many individuals reviewing their current options. Advisers should be on the look-out for those who fit the bill and there is always the potential to work with mortgage advisers who do not cover equity release to ensure the introduction of this growing band of potential clients.”