After over 20 years working in the equity release market I am more than conscious of the perception of equity release and the often propounded view that equity release is the “option of last resort”.
Whilst I fully appreciate that equity release should never be considered as a first or only option for borrowers it certainly is not the pariah it is often portrayed as.
With the easing of certain restrictions under lockdown – which has encouraged a return to physical valuations and the Land Registry opening its doors to process applications – coupled with a need from homeowners to release money from their homes to boost their income or gift to family members during this financially tricky time, advisers should consider recommending equity release.
If money is needed now, borrowers should act imminently. The country is expected to plunge into a sharp recession, which would impact the availability of funding and dissuade borrowers from releasing equity from their home. This is despite equity release interest rates largely remaining unaffected by this short-term variation.
The property market is also showing signs of weakening and there is a consensus that we are currently in a mildly inflated property bubble with prices artificially higher than they would be in an open market situation. With a recession looming there is a very realistic fear that prices will tumble which would mean borrowers needing to take the maximum from their property (to repay existing loans for example) will struggle if property prices fall. This comes after a difficult time last year, when the political uncertainty warded off investors, borrowers and further funding streams for lenders.
With the record low rates currently on offer in the equity release market combined with the ability on some products to repay a percentage each year a lifetime mortgage is becoming far more attractive. Combine this with potentially falling house prices, increasing unemployment/furlough/reduced working hours and a desire to help out family or a realisation by many older borrowers spurred on by the pandemic that life can be precarious. The here and the now is the time for equity release and conveyancers should be considering this for their clients who are in these positions.
The conventional criticism of equity release focuses on compound interest and the gilt rate based early repayment penalties. However, these have now been all but silenced in the past few years with many products offering the ability to repay annually and a fixed early repayment penalty commensurate with the main mortgage market. For example, think to the recent announcement by Pure which has offered a product at a record low of 2.44% fixed for life.
Given the potential returns for borrowers coupled with the present positive signs to go ahead and the close regulation, this makes equity release a more attractive animal than it has ever been for conveyancers to recommend to their clients.
