Celebrating innovation in home finance market can dispel customer misunderstandings
The equity release market continues to grow at pace. The latest figures from the Equity Release Council show that there are twice the number of product options available in the market compared to two years ago, while customer activity has almost doubled since the first half of 20161. These statistics are all the more impressive given the consumer misconceptions that still prevent people from considering these products.
Canada Life’s report 'Home Is Where The Wealth Is' documented such misunderstandings. It found that the biggest barrier to equity release for over 55s was the fear that they will lose control of their property.
But this is not true. So long as equity release customers abide by the terms and conditions of their loan, they will remain in control, and retain ownership, of their property. Another reason some homeowners are reluctant to consider equity release is more mistake than myth. Many still think there is only one type of equity release product on the market: the interest roll-up lifetime mortgage. Whilst this is one of the most popular products, and is particularly helpful for older homeowners who don’t have the income to make repayments, interest roll-up lifetime mortgages certainly aren’t the only option. Many other types of lifetime mortgage are now available to provide customers more flexibility, including options where monthly interest payments or ad-hoc payments can be made.
It is so important that customers are aware of innovation across the market, which has created more choice as well as increased flexibility and certainty. Many homeowners want the best of both worlds – they want to tap into their property value and reduce the impact of interest roll-up, protecting equity to pass on after their property is sold.
And providers have responded to this desire by creating products that accommodate the evolving needs of lifetime mortgage customers. More and more flexible options are now coming on to the market. One of the latest products allows customers to pay up to 15% of the initial loan amount each year without incurring an early repayment charge.
The growing use of equity release to help younger relatives onto the housing ladder makes this kind of solution preferable to interest roll-up. Flexible repayment products help in two ways: first, young people can get off the rollercoaster of rentals and establish a firm foothold in the property market, and second, younger generations can support any payments due and reduce the amount their older relatives are liable for at the end of the loan.
Products that are flexible and that suit customers’ needs will carry on shaping the equity release market as the industry continues to grow. And tackling customer misconceptions will go a long way in helping to look at retirement income holistically, reviewing property alongside pensions, investments and other assets. To ensure the continuing success of the sector we should start by celebrating the variety of home finance products on offer today and ensure we continue innovating to support the retirees of tomorrow.