Equity Release Proves Popular and Pension Pots Prove Insufficient

Equity release has become an increasingly popular option for retirees, as many homeowners face the daunting prospect of insufficient retirement income.

Official guidance from the Pension & Lifetime Saving Association’s ‘Retirement Living Standards’ states that to meet their basic living requirements, retirees need a minimum of £10,200 in their pension pots. In 2020, figures suggest that more than 85% of newly-accessed pension pots contained less than £10,000.

This would suggest that even with full state pension contributions, those concerned would find their finances stretched uncomfortably.

Meanwhile, average property prices in the UK have spiked by more than 13% over the past year alone. In the 10 years from July 2011 to July 2021, average property prices in the UK grew from £169,866 to £255,535.

In total, combined equity wealth among adults over 50 in the UK is somewhere around £3.8 trillion. Retirees who own their own homes could, therefore, be sitting on all the capital they need to get the most out of their retirement.

With a lifetime mortgage, aka equity release, those who are asset-rich but cash-poor could leverage some or all of the equity they have tied up in their home—precisely what millions are doing—in order to raise cash for a variety of reasons.

Applications for equity release

The latest figures from Legal & General indicate a number of patterns among intended applications for lifetime mortgages. One of the most common reasons for releasing equity is funding home improvements, with 41% of applicants indicating their intent to renovate their homes.

Around 17% said they intended to give some or all of the funds raised to their loved ones. Helping family members with mortgage deposit requirements to purchase their own homes is another popular application.

In the wake of the COVID-19 pandemic, there has been a major spike in the number of equity-release customers simply releasing funds to sustain their lifestyles.

Further growth is projected for the equity release sector

Speaking on behalf of Legal & General Home Finance, Chief Executive Officer Claire Singleton predicted further growth for the sector going forward.

“In recent years, people have become more accepting of the concept of equity release, which has helped the market grow. However, many potential customers are still unaware of the product’s flexibility and the broader benefits this can have both for individuals and wider society,” she said.

“We anticipate that as more people see the value in their property wealth increase, lifetime mortgages will cease to be seen as specialist’ option and instead become a more standard consideration among other at-retirement products.”

“Looking ahead, we anticipate that products on the market will evolve to better serve the diversity of consumer needs, whether it’s innovation that helps people improve their quality of life, support their loved ones, or ‘green’ improvements to help better manage their impact on the world around them. The home is a vital part of an estate and is often an individual’s largest asset.”

“As people are living longer, accessing property wealth will become an increasingly important consideration to help meet financial goals and fund the retirement they dream of.”