client base
Extracting capital from a residential property by way of a loan
that need only be repaid when the property is sold or out of the
borrower’s estate after death – equity release – is gaining
acceptance among pre-retirees in the UK. This was a key finding of
a survey conducted on behalf of UK insurer Norwich Union (NU), one
of the leading equity release product providers.
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According to NU, the survey of people aged between 50 and 66
revealed that among those approaching retirement, 9 percent said
they would probably take out an equity release product, compared
with 5 percent who were already retired.
Pre-retired people were also more positive about equity release
products generally, with one-third of pre-retired people saying
that they might be a sensible option when older, compared to less
than one-quarter of retired individuals. The study also found that
90 percent of people questioned were aware of equity release
products.
“The research shows there is generational shift between pre-retired
and retired people as more people in their 50s and early 60s are
considering the product as a way of funding their retirement,”
commented NU’s director of post retirement products, Willie Mowatt.
“This is a positive step forward for the equity release market, as
it shows it is shaking off its tarnished reputation and taking its
rightful place amongst the retirement planning portfolio.”
That equity release has growing appeal among pre-retirees has not
gone unnoticed by other players in the market. According to
financial product comparison company Moneyfacts’ mortgage analyst,
David Knight, an increasing number of the 20 product providers are
lowering their minimum age requirements.
The most recent of these have been insurer Prudential and
specialist equity release company New Life Mortgages, both of which
lowered their minimum age requirement to 55 from 60 in November.
Three other lenders have a minimum age requirement of 55, while
Scottish Building Society’s minimum age is 50.
Alluding to the compounding effect of interest on debt, Knight
noted that there is potentially a huge difference in the build-up
of debt on an equity product that is taken out at a younger age
than at an older age (see table).
“In times of tightening lending conditions and the first signs of
property prices falling, it’s perhaps an usual time to see this
relaxation of criteria in a market dependent on growth and
stability for its success,” commented Knight. “These lenders must
be predicting a rosier picture for the medium and longer
term.”
Robust growth
Knight’s comment comes at a time when the UK equity release market
reflects robust growth. According to Key Retirement Solutions
(KRS), an independent financial advisory company specialising in
equity release products, the total number of plans taken out in the
first nine months of 2007 increased by 9.6 percent to 22,606
compared with the first nine months of 2006, while the average
amount released increased by 16.2 percent, from £42,126 ($86,740)
to £48,957. In total, the amount released in the first nine months
was £1.04 billion, an increase of 26 percent. Market conditions
remain positive and the last quarter of 2007 is expected to produce
strong results.
Also of note, said KRS, was that the average age of borrowers
continued to fall during the first nine months of 2007, averaging
68.4 compared to 69.7 during the same period in 2006.
“This can be attributed to a number of factors – the availability
of equity release plans from age 55, the increasing popularity of
drawdown plans [in which a preselected total amount is drawn down
in tranches] and perhaps a continuing trend for people to release
equity at a younger age to help bridge the pensions/savings gap,”
said KRS. The company added that the declining average age trend
was expected to continue.
