Bridgewater Equity Release has reported that its customers are increasingly using equity release to fund their long-term care needs in retirement.
In 2007 only 1% of those surveyed said they were releasing cash from their homes to pay for their long-term care provision; however, this has now risen to 10% during 2012/13.
The equity release provider has also revealed a number of other significant changes to the reasons why consumers have taken out its plans over the course of the last six years. Taking 2007 as a starting point the provider has looked back at every plan sold since and analysed the reasons given by each customer regarding their intentions for the released equity.
Customers who complete a plan are able to choose from a list of 14 different reasons why they have chosen the product ranging from home improvement to debt consolidation through to the purchase of a holiday home or IHT planning.
Traditionally customers have predominantly looked to use their released cash to fund various forms of secured and unsecured debt. Back in 2007 the top four reasons why customers chose a Bridgewater reversion plan were: 1) to repay a mortgage (24%); 2) to undertake home improvements (17%); 3) to fund debt consolidation (13%); and 4) to travel (12%).
In 2012/13 the top four reasons chosen have changed with those releasing cash for home improvements rising to 23%, those using it to travel rising to 15%, while customers wanting to repay a mortgage has dropped to 13% with 10% choosing long-term care provision.
Over the course of the last six years there have also been some significant increases in the number of customers saying they will use their money for both a rainy day/emergency fund and to supplement income/maintain lifestyle. The former increased from a low of 2% in 2008 to 7% in 2012/13, while the latter increased from its low of 3% in 2010 to 9% in 2012/13.
Chris Prior, manager, sales and distribution at Bridgewater Equity Release, said: “Understanding why customers want to release equity from their homes helps us not just to structure our product ranges but to also support advisers as they seek to generate leads, educate introducers and engage with their potential customer base. It’s been quite noticeable over the course of the last six years that we are seeing equity release and, in particular, our home reversion plans being used for a whole variety of reasons. While large numbers of customers continue to use their cash to repay debt – both secured and unsecured – we have seen an increase in the popularity of funding home improvements, travelling, putting money away for a rainy day and ensuring that income levels into retirement are maintained.
“What is clear from our research is that individuals in retirement don’t just have ambitions and goals they’d like to achieve but must also think very carefully about how they fund a growing list of financial commitments. We can see that with pension levels dropping more customers are opting to release cash to supplement their income whilst at the same time looking at how they can fund their long-term care needs. We have seen a noticeable increase in the number of customers using equity release for this very purpose and I suspect that, as the State’s support and role in our lives gets less and less, this will continue to grow.
“We certainly believe that demand for equity release products will increase in the future due to a number of underlying drivers that are not going to change anytime soon. While we are not at a point where equity release is a ‘go to’ product we are seeing wider understanding of the sector and the solutions it can offer. Providers and specialist advisers, alongside the Equity Release Council, have a major role to play to ensure that equity release remains a credible opportunity for those individuals looking to fund their retirement living and goals.”