David Forsdyke, Equity Release expert and head of our Later Life Finance team, explains why Equity Release is emerging as a major financial planning tool.

The last set of figures published by the Equity Release Council report show that older homeowners released over £1billion of property wealth in each quarter last year. We are therefore likely to see figures from the industry in the next few weeks confirming over £4billion of Equity Release in 2021, and some (including me) predict the final number might be close to £5billion. This is huge, and represents significant rapid growth compared with the £2billion released just six years ago. This year, 2022, could see £6billion or more released.

But why? Well, there are numerous factors driving this growth. Here are just a few of the things we have noticed among our clients since we launched our Later Life Finance service in 2019;

1. Equity Release is entering the mainstream

We saw a dramatic increase in the number of enquiries from Wealth Managers and Financial Planners last year. Borrowing in retirement is becoming much more acceptable, and the increase in choice and flexibility, coupled with a huge reduction in the cost of Lifetime Mortgages (the main form of Equity Release) over the last three years, is allowing older homeowners to release equity easily and effectively, putting otherwise illiquid wealth to good use. This in turn is creating opportunity for wealthier homeowners that did not exist previously, and it is rapidly becoming part of mainstream financial advice.

2. Equity Release is increasingly being used to pay for care

We are all living longer. Although Covid-19 has caused a short term global drop in life expectancy, the long term forecast from Public Health England shows the number of over 85s is expected to rise from 1.35million in 2017 to over 2million by 2031. This adds pressure to our finances as we need our resources to support us for longer, especially if our health declines and we need care and support in our final years.

3. Equity Release can make up shortfalls in pension income

Property values have continued to increase over the long term, and are among the best performing assets since the 1990s. Sadly the decline in pension provisions and savings during the same period has been widely reported. The ONS UK Household Saving Ratio shows a dramatic decline in savings between 2015 and 2019. The Covid-19 pandemic has reversed this decline, but for many it is difficult to save anything, so we are living longer but putting less aside. Add to this the huge shift in the pension landscape over the last 15 years, with final salary schemes disappearing and an increased reliance on our own ability to invest into money purchase schemes. It becomes easy to see why so many are turning to the wealth they have built up in their property once other pension provisions start to fall short.

4. Equity Release is a way to redistribute wealth

For wealthy homeowners, having too much is a cause for concern. Indeed the Knight Frank Wealth Report shows 42% of Ultra High Net Worth Individuals are worried about tax issues, and 28% worry about the transfer of wealth to the next generation. We are seeing an increasing number of clients who want to create debt against their estate, which reduces the value as far as Inheritance Tax is concerned, and use the money borrowed to make gifts to their beneficiaries. As long as they live for the following seven years these gifts are completely outside of their estate. This makes the transfer of wealth potentially more tax efficient, but more importantly the younger generations are receiving sums at a time when they can put it to good use, perhaps towards their own property purchases, rather than waiting until parents or grandparents pass away.

The over 55’s hold the majority of all property wealth in the UK (around 75%). I predict that, in 2022, we will continue to see more homeowners turning to Equity Release, and I for one am looking forward to supporting the growing number of clients and firms who are turning to us for our expertise.

If you’d like to find out more about Equity Release, lifetime mortgages or other mortgage solutions specifically tailored to the needs of those over 55, you can call David directly on 01483 947764, or email one of our expert brokers at Knight Frank Finance to discuss your options.