Growing numbers of retired homeowners are passing on their wealth by releasing equity from their home and gifting the money to friends and family.
Figures released today show £3.6 billion of new property wealth was released last year by retirees and this intergenerational transfer of money – where wealth is passed from homeowners to their children or grandchildren – has been one of the major drivers.
According to data from equity release adviser, Key, the proportion of customers using the money released from their homes to help their families increased from 24% to 27% in 2018.
How do customers use the money?
It found the money being gifted to family and friends was typically being used to fund house deposits, clear debts or to pay for big life events such as weddings.
However, this was not the only reason retirees wanted to take out equity release or lifetime mortgages. Indeed, 64% of customers were reinvesting the money into home improvements, often to ‘age proof’ their properties. Others were using the cash to pay for holidays. Many were using it to clear debt.
Will Hale, CEO of Key, said debt remained a major issue for some retired people. “Substantial numbers,” he said, “are relying on equity release to clear credit cards and loans as well as paying off mortgages.
“Good specialist advice is key to ensuring that older homeowners receive the most benefit from their property wealth and use it in the most appropriate way for them and their families.”
Growing popularity
The equity release market has doubled in size in the last three years. In 2018 Key said the number of plans sold increased by 21% and the amount of value released from these plans soared by 19%. When taking into account further advances and the amount of money held in drawdown plans – where cash is released in stages – the amount released in 2018 comes close to £4 billion.
David Burrowes, chairman of the Equity Release Council said Key’s data illustrated how the modern day equity release market was serving a vital social purpose in helping thousands of older homeowners and their families to use their property wealth to support financial goals.
He also highlighted how the market had expanded thanks to more flexible products and innovative plans and sought to calm any concerns people had of the repute of the industry.
Regulation
“Today’s market is built on a combination of increasing choice and robust consumer safeguard,” he said. “Looking ahead, it is important that this is maintained as a range of later life products continues to grow.
“It is vital we encourage customers to consider all available options in terms of their wealth and assets to get the best outcomes from a rounded approach to retirement planning.”
