Under 65s turn to equity release

The Equity Release Market Report found that 55 to 64 year olds made up one fifth (20%) of the market in the second half of 2014, up from 17% in the first half.

Over the same period the number of new equity release customers was 32% higher, as H2 2014 was the busiest half of the year since 2008 for new plans.

Nigel Waterson, chairman of the Equity Release Council, said: “The pension freedoms will encourage careful consideration about how people can best fund their lifestyle beyond the age of 55.

“Whether or not they choose to withdraw a lump sum from their pension at any stage, homeowners can take great comfort from the significant wealth in their homes which often far exceeds the average single DC pot.

“It is vital for people to consider all the options available to them in retirement, and make an informed decision about how best to use the various products at their disposal. Not everyone needs a lifetime mortgage, but it should always be on the checklist for consideration.”

The Equity Release Council also reckoned the introduction of the Mortgage Market Review in April 2014 has prompted more 55 to 64 year olds to get involved.

Alice Watson, product and communications manager at Stonehaven, said: “There’s no doubt that with new MMR rules kicking in, people in their fifties and sixties are finding it more difficult to secure a residential mortgage.

“What advisers tell us is that when those people look at other options, they learn about equity release and like what they see.

“That is evident in the increase in 55-64 year olds entering the market."

She added: “However, we’ve also seen a range of new products and features introduced – such as the introduction of capital and interest paying loans – which have brought equity release closer to the mainstream mortgage market.

“Borrowers are seeing that with these innovations, lifetime mortgages offer real flexibility and certainty when it comes to planning for later years and retirement.”

The 55 to 64 year old age group has come back to the market, as the proportion of new equity release customers between 55 and 64 actually dropped from 24% in 2011 to 21% in 2013, pushing up the average customer’s age towards 71.

Two-thirds (66%) of new equity release customers chose drawdown products in 2014, a third (34%) opted for lump sums and less than 1% went for a home reversion plan.

Drawdown customers typically have more valuable homes, they but withdrew less than a sixth of their total housing wealth in 2014 (£46,356).

Lump sum customers released an average of £69,118, 176% larger the average defined contribution pension pot of £25,000.

Geoff Charles, chief executive of Bower Retirement Services, said: “The pension freedoms will go some way towards giving the older generation control over their spending, but even with this added flexibility, the cold hard truth is that the average pension pot isn’t enough to fund a comfortable lifestyle for many.

“At the same time, pensioners often have a lot of wealth tied up in their home.

"Equity release can play a part here, supplementing a pension pot to enable over 55s to make the most of their retirement, helping them to pay off their mortgage, or giving them the money to help family and friends.

"As more lenders develop equity release offerings, the choice of options is becoming ever wider – and the quality of advice on offer is becoming ever better.”