There is an increase almost daily of the change in demand for Equity Release product. There are many changes in the reasons that people are looking at the sector, however a common theme is that the amounts which are required are increasing. The amounts are increasing both in capital amount and loan to value terms. There are many reasons for this but the most important one is that those over 55 are increasingly being left with large mortgage sums outstanding. Previous generations have reached this age normally with a mortgage paid or nearly paid. Due to the changing social and home owning conditions in the UK over the past 20 years this is now no longer the case. Many have changed homes many times over this period of time and in many instances have effected Interest Only Mortgages with no repayment vehicle in place. This has lead to people coming to retirement age with a large mortgage outstanding and only the tax free portion of their pension to pay the mortgage off. In many cases this figure is not enough to cover the mortgage. This is where an Equity Release plan can alleviate the situation. By releasing capital from the residential property they can pay off the outstanding mortgage and replace it with a plan where the interest does not need to be serviced. The sticking point ion many instances is that the ltv available on the Equity Release plan is not sufficient to clear the mortgage.
Where the problem both for the consumer and the professional trying to effect a solution becomes more severe is where the consumer is not yet at retirement age. We are finding many more applicants who are very close to the 55 minimum age limit for Equity Release plans. These people are enquiring about the plans due to having a large outstanding mortgage and they in many cases have unfortunately lost their jobs and redundancy payments, if there are any have been insufficient to pay off the mortgage. This constituency find themselves at 55 plus without an income or any substantial capital sum and with a mortgage to service. The idea of an Equity Release plan to these people sound fantastic, the issue tends to be that the loan to value required to clear the loan is not available due to their age and the actuarial calculation regarding their life expectancy.
It would be naïve to think that the calculations the providers are making will automatically increase ltv’s to accommodate this new demand. It is time though for the providers to radically rethink their products to see if they can make any accommodations for this audience.
Mick Bradley
Managing Director
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