The pandemic is fuelling growth in the Equity Release market, says David Forsdyke, Head of Later Life Finance at Knight Frank Finance.
Figures published by the ONS show hundreds of thousands of workers aged between 50 and 70 have lost their jobs, been made redundant, or financial pressures have forced them to close their businesses. Over three quarters (77%) of workers aged 50 to 60 have left work earlier than they expected, and most are not able to return to a job.
Being pushed into early retirement means turning to savings, pension funds or property wealth to provide essential income.
David explains: “The problem here is that we have witnessed declining pension provision and savings over recent years.” The ONS UK Household Saving Ratio shows some have been lucky enough to increase their savings since the pandemic began, but for most it has been a dramatic decline between 1993 and 2019, leaving savings and pension funds at disappointing levels. Asset rich, cash poor homeowners will need to turn to their property wealth in order to support themselves through an early retirement.
Lifetime mortgages, the most common form of Equity Release, have become increasingly flexible over recent years in order to meet this need to top up income. Reserve, or ‘Draw Down’, facilities are agreed upfront by the lender and allow the borrower to take funds in small amounts when they need them. It could be a regular monthly amount or ad-hoc withdrawals. This keeps the cost of borrowing to a minimum as they only pay interest on what they borrow, not on the whole facility.
We have helped a number of clients use a lifetime mortgage in this way. For example, a 60 year old with a home worth £600,000 could get up to £228,000, or 38% of their property value, as a drawdown facility. They could then borrow this in small tranches of £2,000 or more in order to support themselves until state pension payments begin, or other sources of income become available.
David Forsdyke has been at the forefront of the Equity Release market for 15 years, including six years with the industry regulator (the FCA) and two years as a member of the Equity Release Council’s Standards Board. For more information, contact David directly on 01483 947764 or email later.life@knightfrankfinance.com