Helping your clients build and release equity
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 older clients’ homes than cash in their pension pots. Releasing some of the equity you’ve helped them build 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 2018, equity release lending reached a record £3.94bn.
Opportunities in the lifetime mortgage market
The lifetime mortgage market continues to grow. Over 55’s unlocked £936m of housing wealth the first quarter of 2019, up from £870m the previous year. 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, accessing property wealth could be an option for your clients.
As the market has grown so has the range of lifetime mortgage 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.
There are many reasons why your clients may choose to take out a lifetime mortgage.
Here are just some of the ways it could help your clients and their families:
First time buyers
Average house deposits in the UK have now reached £33,127. First-time buyers are more dependent on help from family than ever before. Nearly 1 in 10 asked their grandparents for support, and more than a third of first-time buyers had financial help to secure their first home.
Longer life expectancies mean that adults are receiving their inheritance much later – recent figures show the average age of inheritance is now 61. For many recipients of inheritance, it will come too late in life to be invested in a first home; they’re more likely to be already established financially.
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.
Helping families upsize
Did you know that your clients can use a lifetime mortgage to buy a bigger property?
By using the equity in their current home, buyers can boost their funds to secure a dream home for retirement. The figures are surprisingly high. More than half of over-55s released equity to fund their move, with 28% upsizing to a bigger home. That idyllic country cottage or seaside retreat might be within reach for those who lack the cash to buy outright.
Some may seek luxury, others will seek convenience. This alone is making new builds a popular purchase for the over 55’s. These homes are often cheaper to run, need little maintenance and are close to amenities. While they may cost more, the social advantage is enormous too. Having extra space for guests to come and stay, or family living close by can help people feel more connected.
Divorce rates in the over 65’s are increasing. Taking this difficult decision in later life can often leave a big hole in retirement funds. Splitting assets in half may seem the obvious choice, but may not always be the best solution for your client. A lifetime mortgage could be used to settle a divorce, and avoid the stress and upheaval of moving. You can find out more about advising the ‘silver separators’.
Home adaptations and improvements
One of the most popular uses of equity release is for home improvements. For some that’s a lavish new kitchen, for others it’s a stairlift that means they can stay in their own home. Helping clients stay in their family home for longer as their physical needs change is made possible with a lifetime mortgage.
It’s estimated that by 2032, there will be £32 billion of interest-only mortgages maturing. While some may have means of repayment, others may have no way of raising the capital. Advising on equity release could avoid repossession. If you have clients with a pending balance to clear on a home they want to stay in, a lifetime mortgage could help. Our Optional Payment Lifetime Mortgage lets your clients service the interest on their loan. They can choose to pay some or all of the interest each month to help minimise the total amount they owe.
Your advice is what matters
With better protection and more product choice – lifetime mortgages offer more possibilities than ever before. Your clients could be holding the key to driving away their dream car, helping a loved one buy a first home or finally fitting the kitchen they’ve always wanted. Whichever way it’s used, it’s your trusted relationship that can support them through the process. It’s you who can help them fulfil their later life goals.
Your client should be made aware that if they gift money away, the recipient may have to pay inheritance tax in the future.
It’s also important to remember that a lifetime mortgage creates a debt on the home. And if your client has more affordable ways of borrowing available, these should be considered first.
Download our guide for helping clients with equity release - PDF file: Helping your clients build and release equity Q0059437 PDF size: 185KB
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Lifetime mortgage calculator
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