Over-50s Confused About Basic Equity Release Terms And Conditions
Latest research has found that the majority of over-55s are confused by basic equity release terms and conditions.
This could be worrying for a section of the market that are increasingly using equity release products to release the money tied up in their home.
The research, carried out by Sunlife, asked 1,001 people aged over-55 a number of multiple choice questions concerning some important areas of equity release. The overwhelming conclusion is that too many people using these products do not understand them.
89% of respondents made at least one mistake when it comes to equity release products. The main misunderstanding involved 35% of over-55s believing that equity release can only be accessed once the home has been paid off in full. This could mean that a huge number of homeowners over 55-years who still have a small mortgage but would like to take advantage of equity release would miss out on the opportunity because they have been ill informed.
Only 45% of over-55s were aware that equity release lump sums are tax free with 44% unsure and 11% assuming that tax would be paid on the amount withdrawn. Only 48% of respondents were aware that a home owner is able to move home if they have already taken out an equity release product.
All of these uncertainties could have a serious impact on the property market or a person’s financial decision in later life. Not being given a clear picture by an equity release adviser could mean that they remain in their home because they believe it would break the terms of their equity release product if they move. Others may avoid using these products to help with their later life as they fear tax implications or still have a mortgage on the property.
With almost £4 billion worth of equity being released through equity release products in 2018 alone, the news that Nationwide , the UK’s second largest mortgage provider, are now offering equity release and retirement interest only mortgages could increase the access and speed with which these products are used.
Nationwide have announced that they will begin selling equity release and retirement interest only mortgages to existing customers in the short-term before rolling them out to all consumers in the summer. Whereas equity release products have been generally offered by insurers and pension companies, the first high street lender entering the market has the potential to reach a larger audience and increase the use of equity release further. It is therefore important that the 89% of consumers that are unaware of important factors surrounding the product are offered the crucial advice to ensure they have a clear understanding.
Simon Stanney, Sunlife equity release service director, commented: “It is easy to see why equity release is becoming a popular way for people to fund their retirement. The over 55s are a ‘cash poor, property rich’ generation, with five times as much money in their property as in their pensions. Our research reveals that two-thirds do not want to downsize, so equity release offers a solution.
“But unfortunately, many people are put off because they don’t fully understand the benefits of equity release.”
Alan Lakey, founder of CI Expert and director at Highclere Financial Services, said: “At Highclere, we do a fair amount of equity release business and the vast majority have little idea of the basis, the costs, the options or the ways that equity release can work.
“Of course, the counter argument is that this is precisely why they come to us, for understanding and guidance.
“It is symptomatic of the mindset of most of the over 55s who, unlike many of today’s youngsters, have limited knowledge of financial services. However, many will likely recall the bad days of the 1980s and 1990s when badly designed schemes tarnished the image of equity release. As always it is a matter of education, but not everybody wants to be educated.”
Does this section of society, who may not be financial services savvy, need greater support and education when it comes to equity release products? Should equity release advisers make these issues clear before a product is taken out?