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Statistics and information
The Equity Release Market
Increasingly, homeowners are turning to equity release to fund part or all of their retirement; for many people retirement can span 20 to 30 years.
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In its simplest form, equity release provides homeowners at and approaching retirement a means of releasing capital from their home, whilst having the right to continue living there rent free for the rest of their lives.
Demand for equity release
The needs for equity release are many and varied, whether it is to pay for day-to-day household expenses, financially assist grandchildren through education, or to make home improvements, equity release provides homeowners access to the capital tied up in their property.
The following illustrates the more common reasons people use equity release.
Longer retirement
Life expectancy within the UK is increasing. Improved medical care, a higher standard of living and better awareness regarding our general health and fitness are some reasons for this.
Indeed, there are even estimates that by 2036, more than 3.5 million people will be aged 80 and over**.
Pensions and savings are required to finance a progressively longer period of retirement. It is widely accepted that for most, pension provision is generally failing to keep up with financial need and that inflation in retirement is far greater for the over 65’s than the published indices. With defined benefit schemes increasingly being replaced by defined contribution schemes, the issue is a serious matter for many elderly homeowners.
According to the Association of British Insurers (ABI), the average annuity purchase price rose from £25,150 at the end of 2008, to £26,200 in the first quarter of 2009.
39% of couples, 58% of single men and 64% of single women with a private pension, received less than £5,000 as an annual income from a private pension in 2006/2007 (source National Statistics).
A key alternative retirement solution
Homeowners in retirement have an exceptionally high proportion of their wealth tied up in their homes. The availability of a widening range of equity release products enables homeowners to tap into the equity tied up in their home. The use of the home is now an important consideration in financial planning and in particular, is increasingly being recognised by many as the alternative retirement planning solution.
The series of shocks delivered through the banking system and the effect this had on investments in 2008/2009, has eroded the savings and income of homeowners in retirement. The increased financial need of the elderly as a result of these events, coupled with the first large wave of ‘baby boomers’ reaching retirement realising they have little or no pension provision, is expected to be a catalyst for the next stage of growth of the equity release market.
Historically the demand for equity release is intrinsically counter-cyclical; homeowners are most likely to turn to it at times of economic uncertainty, particularly when there are fewer alternatives available. With the projected growth in the number of retired people, the retirement market is now considered to show more potential than any other financial sector. This recognition is expected to attract more expertise and capital to the equity release sector. Equity release is now a key part of financial planning for retirement.
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