29 August 2022

Helping your clients build and release equity

By Legal & General Home Finance

When it comes to buying property, clients want advice from someone they can trust. From stepping onto the ladder to choosing their final home, a relationship with a mortgage adviser builds over almost a lifetime. But what happens when your clients reach retirement?

There could be more equity in your clients’ homes than cash in their pension pots. Releasing some of the equity you’ve helped them build over time could fund a better retirement, with advice from someone they trust.

Releasing equity with a lifetime mortgage

A lifetime mortgage is a type of equity release that can only be sold with advice. Taken as a tax-free lump sum or in smaller amounts over time, it’s a loan secured against your client’s home. The industry has been radically reformed over the last 25 years.

The Equity Release Council (formerly SHIP) has led the way in developing new codes of practice. These have helped to safeguard consumers and grow the market responsibly. Most significantly, the “no negative equity guarantee” means the loan can never exceed the value of the borrower’s home. This protects families from any debt when the last remaining homeowner dies or moves into long-term care.

Another standard set by the Equity Release Council gives the customer the right to stay in their home for life. These changes have boosted consumer confidence and helped the industry to shake off its negative reputation from the 1980’s style plans. In 2021, equity release lending reached £4.8 billion, six times greater than in 2011.

Opportunities in the lifetime mortgage market

The lifetime mortgage market continues to grow. Over 55’s unlocked £1.53 billion in housing wealth between January and March 2022, up from £1.34bn in Q4 2021. Although lending figures show no signs of slowing down, the number of advisers becoming qualified remains stagnant. It’s estimated that less than a quarter of advisers (23%) are equity release qualified. This presents a huge opportunity for your business to tap into a growing market.

Consumers need to connect with advisers they can trust. And with more people accessing their housing wealth than ever before, good advice has never been more important. Taking out a lifetime mortgage is a big decision but can help provide enough funds to support people living longer. When pension pots and savings can stretch no more, or your client is looking to diversify their retirement income, accessing property wealth could be an option.

As the market has grown so has the range of equity release products available. This has given consumers’ greater choice and flexibility. Some products allow regular interest payments to be made, while others offer inheritance protection at no extra cost.

Whatever your client’s plans and dreams for retirement, your advice can help them navigate the market to meet their needs. For some, it may be about that dream holiday. For others, it may be investing in their family’s futures, or adapting a home they can stay in for longer.

Here are just some of the ways your client could use a lifetime mortgage when they reach retirement:

First time buyers

Average house deposits in the UK reached £53,935 in 2021 as property prices continued to soar. First-time buyers are more dependent on help from family than ever before, with 56% needing financial support to get them onto the property ladder.

Longer life expectancies mean that adults are receiving their inheritance much later, with the average age of receiving a windfall inheritance reaching 61. For many recipients, this will come at a time when they’re already financially established.

A lifetime mortgage could be a way to fund the deposit to help a first-time buyer. If your client wants to support a family member but doesn't have access to a cash lump sum, they could release some of the money tied up in their home. This financial contribution could be given as a ‘living inheritance’. This has the added benefit that your clients can live to see the difference their money has made.

Supplementing the cost of living

Over the past 12 years, the over 65s have increased their share of the nation’s property wealth from 28% to 37%. This, coupled with rising house prices, seems to be driving more homeowners to consider how property wealth could support them financially in retirement.

More people are releasing the equity built up in their property to maintain standards of living and boost the quality of their retirement, with £1.2 billion a year spent on day-to-day expenses like food, clothes, transport and entertainment. We’re also seeing an emerging trend where the eco-conscious release money specifically to make their homes more energy efficient. This could be in response to rising energy bills or simply more people taking a proactive approach to improve the homes they wish to stay living in.

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