House prices present a double edge to the equity release market, argues Peter Welch, head of sales and distribution at Bridgewater Equity Release
Those reading the recent reports and data from the numerous house price indices that are published each month could, at first glance, become rather depressed at the fall in prices many statistics have been showing over the past few months. This depression may become even more pronounced for those involved in the equity release sector. If the reported falls in prices turn into a longer-term trend the immediate reaction might be to view the news as less than helpful to those clients who are considering releasing cash from their homes.
However, it is not in my nature to dwell on the negative and anyone who knows me well will be aware of my somewhat annoying tendency to view the world from a ‘glass half-full’ standpoint.
Looking from the customer’s perspective if they are worried about house prices continuing to fall, and they’ve been considering equity release for some time, then now might well be the right time to take out a plan.
Delaying a decision, especially for those seeking a high percentage release, might mean the loan-to-value offered later will be lower and may not meet their needs. Similarly, with a home reversion plan the house price inflation risk is passed on to the provider. So customers with a bearish attitude to house prices may currently find a reversion a much more attractive option.
In the great house price/equity release debate, we should also not forget existing customers, i.e. those considering additional releases from their lifetime mortgage or home reversion plan. Further ongoing falls in valuations may result in borrowers ‘hitting the buffers’ on loan-to-value, thus denying them additional cash until house prices recover.
Of course falling house prices are not bad news for everybody. A drop in prices presents an opportunity for first-time buyers, provided of course they are able to raise a deposit and can also access mortgage finance. Hardly a small achievement in today’s mortgage market.
With this in mind I was interested to read a recent survey that said 26% of grandparents expect to fund their grandchildren’s tertiary education. Now, it’s not a huge leap of logic to assume that if grandparents have an appetite to fund University education they would equally be happy to fund deposits for their grandchildren’s first home.
Many of the ‘asset rich – cash poor’ retired won’t even be aware that equity release is a possible tool that helps them make a difference in the lives of their family’s younger generation. Taking this logic even further, let’s examine who carries the risk of a price fall in property. If clients are releasing equity to gift to younger generations (who would have inherited that property anyway) you could argue that they may wish to get onto the property ladder now, rather than wait another 15 to 20 years for their grandparent(s) to die.
As can be seen, whatever the market conditions we’re faced with there will always be opportunities for advisers, clients and their families to use equity release to make a difference in the quality of their financial lives.