Most of equity release advisers are optimistic about the future performance of the sector market, recent research from Bower Retirement Services shows.
Almost three-quarters (70 per cent) of advisers are projecting continuing market growth in the next six months, despite the short-term effect of the new pension freedoms, according to the latest instalment of Bower’s Quarterly Adviser Tracker.
Advisers remain confident that the market for equity release products is set to grow over the long-term as well, even though retired customers now have the option to drawdown some or all of their defined contribution (DC) pension pots.
Two-fifths (60 per cent) of advisers said enquiries from younger clients about equity release are increasing. The majority (72 per cent) involve their families in the decision-making process and advisers report that it can sometimes be the families that make the original enquiry on behalf of their parents. Those who don’t wish to involve their families in the decision are divided between those who feel it is a personal matter for them alone (68 per cent), and those that have fallen out with their families (32 per cent).
More than a third (39 per cent) of older homeowners enquiring about equity release have an outstanding mortgage and almost three-quarters (74 per cent) of these have their mortgages on an interest-only basis.
The reasons for releasing equity in retirement remain almost unchanged, with debt consolidation topping the list (42 per cent). However, the proportion of people who chose equity release to boost inadequate pensions has more than doubled to 14 per cent in the first quarter of 2015 from 6 per cent in the last three months of 2014.
Fewer pensioners released equity to do home improvements in the first quarter of this year (15 per cent) than in the fourth quarter of last year (17 per cent). The percentage of people who accessed their property wealth to cope with the cost of living also dropped to 11 per cent from 17 per cent.
Having sufficient existing savings is the main reason that clients are advised against releasing equity, with 50 per cent of advisers citing this reason in the first quarter of 2015.
Geoff Charles, CEO of Bower Retirement Services, comments:
“Advisers do expect the recent introduction of the pension freedoms to have some effect on the equity release market and expectations are still that the market will continue to grow over the long term. All the discussions around what options people have in retirement is raising awareness for all types of solutions.
“We shouldn’t forget that there is a sizeable slice of people who are unable to access their pension pots, even under the new pension rules; those with final salary or ‘defined benefit’ pension schemes. For these people, who aren’t able to drawdown any part of their pension pot apart from the initial tax-free lump sum, equity release could be well worth considering, depending on their circumstances. The family members who stand to gain from an inheritance are unselfishly encouraging retirees to release their property wealth to enjoy their retirement or boost their pensions.
“While always worth careful thought, equity release is not suitable for everyone and our latest figures show that our advisers recommended 7% of clients in the last quarter – up from 5% in Q4 2014 – consider other means such as existing savings or pensions. As demand for equity release grows, it is fundamental that advisers continue to act in their clients’ best interests. This is especially crucial where the client chooses not to involve family members in their decision, either because they feel it’s entirely their personal decision or because they are estranged from their family.”
