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Equity release opportunities suffering from public perception

6 February 2020

The amount of property equity available to older homeowners rose to more than £381 billion at the end of 2019, new research from Canada Life has shown.

According to the data, there is over £1 billion more equity available to UK homeowners aged 55 and over compared to the fourth quarter of 2018, in part driven by a 1.4% rise in the average house price.

Alice Watson, head of marketing, insurance, Canada Life, says the figures suggest there is bigger potential for people looking to tap into their property wealth.

She said: “Advisers we’ve spoken to predict the market will grow to above £5 billion in 2020 and with house prices increasing, there’s an opportunity for over 55s to boost their retirement lifestyles using the value in their properties.

“Our own data shows us that people use equity release products for everything from home improvements and holidays, to everyday expenses. The rising costs of living, combined with increased property prices, mean that over-55s will need to continue to view their wealth holistically and recognise the role that property wealth can play in providing retirement income.”

The growth in property prices has also led to children and grandchildren looking to family and friends to help them get on the housing ladder, further research from Canada Life has suggested. Advisers believe nearly three fifths (59%) of equity release customers will use the product this way in 2020.

Watson continued: “Our research with advisers suggests that one of the key motivations for taking out a lifetime mortgage in 2020 will be to financially support children or grandchildren. With more equity now available, homeowners will have greater opportunity to use their property wealth to offer financial support to their family, without needing to downsize their homes.”

However, despite the opportunities available, Canada Life said more than three quarters of advisers believe that a negative perception of equity release among consumers will pose the greatest barrier to the market.

According to separate research, 77% of advisers cited a negative view of equity release, influenced by scare stories in the media, as a barrier to market growth, over double the number of advisers who said similar in 2016 (38%).

The second biggest barrier was poor consumer awareness of equity release, which 44% of advisers believe is hampering growth in the market. Similarly, consumers have a lack of understanding of equity release, with 15% of UK homeowners saying they wouldn’t use the product to fund their retirement because they don’t understand how it works.

Watson said: “It’s clear that advisers, who speak to consumers every day, believe that scare stories are putting people off equity release. Unfortunately, these stories can misrepresent an industry that has moved on a lot since some of the more infamous reports in previous decades.

“In order to improve the public’s perception of equity release, we need to improve consumer understanding. Canada Life’s Equity Release Explained brochure is aimed at friends and family members and outlines the key information about lifetime mortgages – a type of equity release – which people can share with those closest to them.”

Canada Life said the biggest misconception among UK homeowners (21%) is that equity release will mean losing control of their home. Other misconceptions include the worry that it will prevent them from leaving inheritance or could result in homeowners owing more than the value of the property.

Watson added: “Sustained innovation has seen many new products come to the market, which offer flexibility and certainty. This has allowed thousands of customers to choose an equity release product that allows them to make payments to reduce the impact of interest roll-up. Although consumer myths remain common in equity release, we expect them to reduce as the industry works to educate audiences and explain how the products actually work.”

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