Jim Boyd
By Jim Boyd
Few people expected the UK economy to emerge unscathed from the white heat of the pandemic, but as inflation creeps ever higher the nation is still getting to grips with the most significant cost of living crisis for decades.
Eye-watering energy bills and petrol prices have grabbed the headlines, but price rises across the board have converged to pile pressure on people’s purses. Coupled with stagnant wage growth and weak investment returns, many are feeling the pinch like never before.
House price gains have been among the rare silver linings for homeowners, although aspiring first-time buyers will not welcome the extra affordability stretch as mortgage rates rise.
Last summer, the Equity Release Council’s Home Advantage study identified a £326,000 financial benefit from homeownership versus renting.
Since then, the average UK home has once again ‘earned’ more than the typical UK employee with average gains of £32,000.
While it is tempting to see every new development through the lens of Covid and the cost of living crisis, it is equally important to remember back beyond the past 12-24 months to understand current trends in consumer behaviour.
The equity release market’s return to growth after its pandemic slump is once more breaking new ground for property wealth withdrawals and total customer numbers.
By doing so, it is resuming a climb which, during the mid to late 2010s, saw the market finally shed its ‘niche’ label and transition into mainstream financial conversations.
Nearly a decade has now passed since a House of Lords select committee report, “Ready for Ageing?”, argued “an effective equity release market to unlock the housing assets held by older people is important” while also observing that “some equity release schemes exist, but they are little used”.
Since then, the retirement landscape has been reshaped by pension freedoms and a modern equity release market has emerged that is better suited to today’s longer and more varied experiences of later life.
Many product features that have made lifetime mortgages into flexible financial planning tools are particularly important in the current climate. The ability to make voluntary penalty-free partial capital repayments, with no ongoing commitment or risk of repossession, is now baked into every new plan thanks to the ERC’s fifth product standard, launched in March.
Customers made more than 125,000 such repayments last year, saving almost £100mn in interest costs over the next 20 years.
Cost of living pressures may impact repayment trends during 2022, but the option for customers to incrementally reduce their debts is now theirs for life.
Similarly, customers who released equity at record low interest rates will find this is a rare aspect of their household finances that is immune to rising costs.
Once equity is withdrawn, the interest rate is fixed or capped for life. As prices continue to rise across the economy, many people might wish their other financial commitments came with the same protection.
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