The interest-only time bomb stories may have died down slightly from the wall-to-wall coverage witnessed a few months back, but it remains a very real problem for thousands of borrowers, particularly those nearing retirement age. With salaries about to disappear and the capital element of their mortgages yet to be paid off, swathes of older homeowners are in something of a perilous predicament especially with lenders setting repayment deadlines.
We’ve long advocated equity release as a possible solution for individuals faced with this situation and a recent nationwide survey by more 2 life found that 45% of mortgage advisers agree it is a viable option. Indeed, its customer data revealed that more than 80% of customers taking out its Interest Choice Plan were doing so to clear mortgage debts and releasing in excess of £40,000 on average.
While our own percentages aren’t quite that high, there has definitely been an increase in the usage of our plans to service mortgage and other debts. What many advisers – and by extension their clients – may not be aware of is that by using home reversion plans as opposed to lifetime mortgages they are often able to release more funds and those not taking the maximum amount can guarantee leaving an inheritance which would be guaranteed with the Bridgewater Flexible Plan.
But despite the fact that equity release seems to be a ready-made solution for many trapped in interest-only limbo, the more 2 life research also hinted at some possible reasons why some advisers remain sceptical. A quarter of those polled felt lifetime mortgage rates are still too high and more than a fifth believe the sector’s reputation remains a barrier for some customers. Around 10% say the funds released are not sufficient enough to cover the capital shortfalls and 13% of advisers cited clients being worried about anything that could threaten their inheritance.
While there is not much we as an industry can do about shortfalls, the others are all factors we can influence. Lifetime mortgage rates are something that individual providers will have to decide themselves whether they can alter, but obstacles such as perception and concerns around inheritance are certainly areas we can address. The industry has worked hard to dispel myths and misconceptions around its practices and benefits and hopefully the ongoing work of the Equity Release Council and providers themselves will continue to enhance this reputation.
In terms of inheritances, there are a couple of points to address. Firstly it is important that potential equity release clients – and this is where a home reversion plan comes into its own – understand they don’t have to access the full amount of capital tied up in their property and can just draw down a portion. This means they can benefit from the proceeds while still leaving an inheritance. Secondly, we have witnessed something of a shift in attitudes towards inheritance from our own plan holders. A growing percentage don’t feel as compelled to leave their children anything given that many own their own homes and aren’t in as much need of help as they once might have been.
And for those who want to financially assist their offspring, many are doing so earlier in their lives rather than waiting until they pass away, whether it be via equity release or not.
Chris Prior is manager, sales and distribution at Bridgewater Equity Release