The UK is renowned for being a nation of proud owners. However, there is one element of home ownership that we still seem reluctant to discuss; use the house as an asset to fund later life.
This unease means that many people will ignore solutions such as life mortgages, mistakenly seeing them as a last resort for people who need cash, as opposed to a product for those who want to maximize the management of their assets.
The boom in the real estate market in recent years has led a large proportion of homeowners across the country to see a substantial increase in the value of their home. The majority of people in England aged 55 or over own their own home (74%), meaning the housing wealth of the over-50s has staggering potential, worth £3.8billion of which this group could enjoy.
The number of wards in England and Wales with a median house price above £1million has increased by 60% in five years, from 25 wards in June 2016 to 40 in June 2021, according to Office for National Statistics data. The essential increase in “homeownership millionaires” means that many more people could reconsider the house as an investment to build a better future.
The continued negative perception of equity release means that many people may wonder why anyone would turn to it if they had other options available to them. This is due to long-outdated attitudes about the role that real estate should play in the financial mix. Using home wealth can be a hugely beneficial addition to a product line, especially when considering the changing pressures on the modern retiree.
Many people nearing retirement or in retirement support young family members, providing money for a range of issues from support for day-to-day expenses to help with a deposit for a first home. While the housing boom may favor longer-term homeowners, it is generally less favorable to new entrants. Using equity can be a helpful way to help children or grandchildren, without compromising the donor’s financial well-being in the process.
Reluctance to use real estate wealth can often stem from people wanting to ensure they have a tangible asset to pass on to younger generations. However, as people live longer, many will likely see the benefit of providing a living legacy instead. Not only does this allow clients to help their loved ones sooner, perhaps when the money is most needed, but it can also help manage their estate to maximize the potential benefits for their families. With many properties expected to have passed the inheritance tax threshold, real estate wealth can be used to make smart choices that also secure the hoped-for inheritance that will help loved ones.
It is essential that advisors question some of the assumptions surrounding the release of equity. Even clients with significant wealth or other assets can benefit from using the property as part of a holistic mix that maximizes their affordability. Currently, it presents an untapped resource for many people who form a generation with high levels of homeownership, who have also benefited from long-term increases in property values.
The industry needs to better demonstrate the value and importance of real estate wealth when used in conjunction with other more traditional retirement products. As well as being aware that a shift in perception can be one of the biggest hurdles for future clients. With house prices where they are now, life mortgages can potentially offer a smart choice to be part of ongoing financial planning.
In turn, the market itself must evolve to reflect this new type of clientele, offering flexible products that give advisors more opportunities to introduce real estate wealth as part of any meaningful retirement conversation. This could include features that allow people to manage interest accumulation or higher LTVs.
As consumer needs and expectations change, it is essential that we continue to evolve what constitutes the best advice. Changing the understanding of who is suitable for equity release could go a long way, not only helping advisors grow their business, but also allowing owners to live a more flexible life into retirement.
Craig Brown is Managing Director of Legal & General Home Finance