Viewers of daytime TV are assailed with three types of adverts – cruises for the confident, funeral plans for the morbid and lifetime mortgages for the skint. Older people watch a lot of TV in the daytime. Funeral plans and cruises are doing fine, but equity release sales have fallen through the floor. At a time of soaring costs of living, we have to ask “what’s happened to equity release”.
According to Carlton Hood, CEO of Responsible Life (now part of Royal London) money released to homeowners through lifetime mortgages fell off a cliff from £6.2bn in a year prior to 2022 to £2.6bn a year later. That is not a numerical palindrome, that’s a fact. Demand for equity release has fallen off a cliff – one of the reasons that Responsible Life is now part of Royal London.
Carlton is a man with a strong moral compass and with Jim Boyd (CEO of the Equity Release Council) represents for me the new face of a part of the retirement industry that has had a bad reputation.
I saw evidence of both the worst and best of what equity release could do when a close relative mortgaged her home following the death of a partner so she could continue to afford to live in it. She is not in care; she is resilient and she is happy (well into her 90s). That is down to an excellent IFA, an insurance company that knew what it was doing and a lot of patience from the rest of the family as we had to endure the bad behaviour of a previous insurer.
It seems odd and perhaps wrong that demand for mortgages and the need for lifetime income are not better linked.
There are still too many arbitrary rules surrounding the underwriting of these mortgages, principally around property. People are not selling their properties; they are simply putting a charge on them which will be redeemed on death or renewed by those to whom the property passes.
There is still work to be done so that older people find the taking out a lifetime mortgage less stressful. The standards of advice and underwriting are not consistent, disclosure of costs is not always what it should be and communications with customers can be pretty poor. Things are improving but as we found, standards are still variable. Getting a good experience should not be hit or miss.
But let that pass, that is not the reason that sales of lifetime mortgages have plummeted, the reason for that is that the cost of financing has increased as interest rates have increased.
It seems odd and perhaps wrong that demand for mortgages and the need for lifetime income are not better linked. There is no doubt that the cost of money will continue to remain much higher going forward than we enjoyed in the last decade and if we continue to consider a mortgage an unacceptable way to release badly needed money from otherwise illiquid assets, we deny the people who matter – those in later stages of life, the freedom from financial worry, that equity release can bring.
People should not be required to “hold on” till rates fall. We should be giving people the opportunity to release now and reset later. Ultimately, the roll up of the mortgage is creating a debt for the next generation but that debt comes with an asset attached, a house that is (by the nature of underwriting) full of equity.
The real losers from the collapse of equity release sales are people like my elderly relative who are now being advised that the cost of money is too high and that they should go hungry rather than pass inherited debt to those in the will.
For no good reason other than I made the arrangements for an IFA to visit my mother and make her happy, I have been asked onto the Trust/Reputation Panel at the Equity Release Summit 2024.
My expertise is in pensions. Most of my peers are now pensioners and most are enjoying a decent retirement living standard. But when I go to church, I am with people from east London, most of whom do not have a pension. They are largely first- or second-generation immigrants from Africa, Asia and the Caribbean. Many struggle to pay their rent, the lucky ones struggle to pay their mortgage and those later in life who pay neither rent nor mortgage tend to be pensioners. Sadly, few of them have pensions but they do have houses.
Private pensions may have failed them or they may have failed to get to grips with private pensions. Either way, they do not appear to conform to the description of boomers as “the lucky generation”. Most are struggling either awaiting the payment of state pension or in receipt of a benefit that hardly covers their food and energy costs.
They are people for whom equity release may be the right product but for whom the “trust and reputation” of secondary lenders is in short supply. We are a long way from reaching large parts of the population with lifetime mortgages. More must be done to unlock the income my fellow church-goers need.
This is an uncomfortable subject, but it’s one that we should be talking about because the people who are on the other side of this argument are not financial advisers or insurance companies or younger relatives, the people who are on the wrong side of this argument are the homeowners who typically have the most need and the least say.
