Silver spenders - An interview with Harold
The ‘Silver Spenders’ research has been featured in the financial press since its publication in February.
The research highlights the wider economic impact of the lifetime mortgage market. But what does this mean for advisers?
Harold Pritchard our Distribution Director gives his views on the research and the potential impact on advisers and their clients.
We commissioned research into the economic impact of equity release – why?
Equity release is a growing market. In four years the market has almost trebled in size. Yet this still represents just 3% of homeowners surveyed – the growth potential is enormous.
Day to day we see the positive impact the extra money can have on our customers. The social benefits of keeping people in their family homes, funding renovations and helping loved ones get a foot on the property ladder.
At a very personal level, this money makes a big difference, but we’re also interested in the economic impact the industry makes. The number of customers taking a lifetime mortgage has risen from 15,900 in 2011 to 35,300 in 2017. The average borrowed, meanwhile, has risen from £56,800 in 2013 to £86,300 in 2017. Once the money is released and spent somewhere, we were curious to follow the thread and see for ourselves where the extra cash ended up.
What did you find?
Well, first we needed to look at how customers were using the cash themselves. The biggest group (36%) were funding refurbishments and renovations. So that could be a new kitchen, fancy new bathroom suite or something quite essential – like a wheelchair ramp for easier access into their home.
Individuals typically take money for a variety of reasons - from paying off debts or helping children and grandchildren buy homes of their own. It still shocks me when I hear stories from our customer care teams. There are older people scraping by each day and worried to turn on the heating – and yet they could be sitting in a £300,000 home.
For some, releasing equity in their home can be a way to make real improvements in their standard of living. It can alleviate some of the financial stress and make them more comfortable.
We hear about generous grandparents helping to buy first homes or treating the family to a much-needed holiday. Some fulfil their ambitions to buy a new car or powerful motorbike!
Everyone is different. We hear lots of great stories from the adviser community, too. Keeping in touch with advisers helps our teams to appreciate the diverse needs and dreams that equity release can help fulfil.
So how did you look at the impact this spend had on the wider economy?
The headline figure is that our analysis suggests that equity release boosts the UK economy by up to £7.1 billion. Although there was only £3 billion of equity released from property in 2017, there’s a multiplier effect where every £1 released generated £2.34 for the UK economy.
There’s direct, indirect and induced impact. ‘Direct’ impact is where the money is spent first – in this case it’s predominantly in the manufacturing and construction industry. ‘Indirect’ impact comes from the increased demand for supplies, such as building materials. There’s also ‘induced’ impact, which is harder to quantify but it includes the increased employment, income tax, VAT and spending which injects money back into the economy.
At a very personal level, this money makes a big difference, but we’re also interested in the economic impact the industry has.
£7 billion is a big number to get your head around. To put it in perspective – that could support the salaries of 14,000 construction workers or 7,500 nurses!
Of course we’re not saying that we’re somehow funding extra nurses as a company – but it’s food for thought that there’s so much money tied up in property in this country which, when released, has a multitude of benefits. You might start to question the advantages for individuals and society where vast sums of money are trapped in bricks and mortar.
We don’t have all the answers, but it certainly raises some interesting questions.
Did you learn anything about attitudes to equity release from the research?
There’s a growing interest in these products, from what we’re seeing in the market and hearing from advisers. We found that 24% of Britain’s homeowners are open to releasing equity from their homes.
Although more and more people are taking advantage of equity release, a number of people we surveyed are still, for one reason or another, not open to the idea. Industry reforms offering greater consumer protection and lower interest rates have made equity release a much more attractive proposition. This is reflected in the record levels of demand we’ve seen in 2017. We still have a way to go to get that message out to consumers.
How should advisers respond to this research?
This research is overwhelmingly positive both for the lifetime mortgage market, and for advisers. It evidences that what we do working together for clients can benefit the individual, but also wider society. Lifetime mortgages boost the UK economy, rather than leaving money stuck in property.
Directly and indirectly that additional money has the power to build businesses, boost wages and contribute to funding better public services. I always knew that industries such as construction profited from the market’s growth, but the knock-on effect for other sectors such as health and education is a less obvious benefit.
The research highlights that there are more homeowners open to the idea of lifetime mortgages than are currently participating in the market. The most important role of the adviser is to educate consumers and ensure that they’re aware of the option. As a business, we advertise in order to raise awareness and build confidence in the product. But it’s the work of advisers building relationships with clients that really continues to drive this growth.