Equity release contributing to potential downsizing reduction

As the use of equity release grew past £3.06 billion in 2017 with a further 25% increase in quarter one data to more than £870 million, many speculate that equity release could replace downsizing in the future.

The quarter one statistics taken between January and March indicate that over 55s released £870 million in the value of their homes during these months. Data from the same period in 2016 shown that only £394 million was released, this is a 120% increase in the use of equity release in two years.

Quarter two data has signified further growth in the sector with £971 million being released between April and June; a 12% increase from Q1. The data clearly signifies that more people are looking to release capital in their homes to help with their retirement costs rather than moving to a smaller and cheaper alternative.

A survey carried out by L&G earlier this year highlighted that over 50% of respondents over 55 no longer consider downsizing to be an option; this statistic increased from 32% in 2017.

Those surveyed highlighted poor housing options and over priced property to be a huge deterrent for moving to a smaller property.

The 49% of respondents that claim they have not moved because of poor housing options are certainly within their rights with only 7000 age-specific properties built in 2017.

Overly high prices for this housing stock and often exorbitant ground fees continue to deter 29% of those surveyed by L&G. As many over 55s opt to remain in their family home, additional pressure is placed on an already struggling second-stepper family home stock.

 The Government’s English Housing Survey for 2016-17 indicated: “that about half of owner occupied households are under-occupied.

“The number and proportion of under-occupied households in the owner occupied sector increased between 1996-97 and 2016-17 from 39% (5.4 million households) to 51% (7.3 million households).

“In contrast, the proportion of under-occupied households in the rented sectors decreased over this period. Under-occupation amongst private renters decreased from 17% in 1996-97 to 15% in 2016-17 and under-occupation amongst social renters decreased from 12% to 8%. At 8%, under-occupation in the social rented sector is the lowest it has been in the last 20 years.”

 David Burrowes, Chairman of the Equity Release Council comments: “It is clear that equity release has become an increasingly useful and flexible financial planning tool for older homeowners. While pensioners’ income is on the rise, a potential over-reliance on private pensions could lead to a retirement income shortfall in the future.

“Equity release provides financial help for consumers in a wide range of circumstances, including some looking to pay off interest-only mortgages and others wanting to make home improvements or adaptations and fund social care needs in the comfort of their own homes. It can also help financial issues across generations.

“Recent data showed the generational gap in homeownership is continuing to grow with 30-32-year-olds having a third of the property wealth that the same age group did ten years ago. Given that nearly 70% of all homeowner equity belongs to households aged 55 and over, it is inevitable that housing wealth will need to be used to help get the next generation onto the housing ladder. Equity release provides a valuable mechanism to provide this as a ‘living inheritance’.

“With demand continuing to grow, equity release is providing solutions to a wide array of customer needs. As well as working closely with policy makers to inform decisions on social care funding and the single financial guidance body, The Council continues to focus its efforts on upholding the highest standards of consumer protection that underpin confidence in the growing later life lending arena.”

When pensions may not stretch far enough to help with the retirement needs of this generation, equity relief has been viewed as the viable solution to many. If the Government’s desire to free up family housing stock in future years remains a genuine concern, they will need to compete with the equity release financial juggernaut that is helping meet the needs of over 55s.

Has a reduction in family housing resulted in fewer house sales in recent years? Have you found that more people are preferring the option of staying in their family homes? What are the implications for the conveyancing sector?  

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