With increasing longevity and rising property values, equity release could be a viable source of wealth to supplement retirement. But on average, advisers talk to only 5 per cent of their clients about it, even though around 30 per cent have total assets of less than £100,000.
There are clearly challenges – both perceived and real – but if you have an ageing population, insufficient pension funds and wealth locked up in an asset such as property, something has to give, right?
Wrong. Two-thirds of advisers expect the level of activity in equity release to remain unchanged in the coming year, with a third expecting a slight uplift.
Despite rising confidence among people over the age of 55 about the role that their housing wealth can play to support them financially in later life – since 2011, the total annual value of equity release plans agreed has increased by 36 per cent – advisers see it almost universally as a final option, with many reluctant to advise on it at all.
This is potentially a problem, because independent financial advice is a key part of an equity release sales process (all sales must be advised). The process breaks down if advisers refuse to play.
So, what are the barriers? For many advisers, there are concerns over inheritance as well as the risk of repayments and mounting debt on compounded interest.
Clearly, one of the key factors is the relationship between future house price growth, the interest rate on the loan and the period for which the loan runs.
As far as the next few years are concerned, the consensus among forecasters is of a more rapid annual growth than the 4 per cent long-term average. Even at a lower rate (given the cap on the proportion of a property’s value that can be released), this means that borrowers stand a good chance of their own equity in the property keeping abreast of their debt.
But many advisers just plain don’t like it. It don’t feel proper. And right there is the power of reputation, and the challenges of overcoming all the negative connotations that still evidently exist.
Fortunately we have Wiki-how – the world’s largest, highest-quality how-to manual. Step seven of its guide to overcoming a bad reputation helpfully suggests the following:
“If you are ever confronted or questioned about past deeds, disregard it with a laugh and explain, ‘It was just a stage I was going through’ or ‘It was just a stupid part of my life I’d rather forget.’
There you go, Equity Release Council – job done!
Phil Wickenden is founder of So Here’s The Plan – firstname.lastname@example.org and @PhilWickenden