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Wealthier Borrowers Twice as Likely to Gift the Proceeds of Equity Release says Standard Life Home Finance

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Wealthier Borrowers Twice as Likely to Gift the Proceeds of Equity Release says Standard Life Home Finance
  • Less affluent borrowers look to repay borrowing, boost income and age-proof homes
  • Following the mini-budget challenges, almost a third of potential customers are adopting a ‘wait and see’ attitude having not made a firm decision

A new study from equity release lender Standard Life Home Finance has highlighted the impact of customers income on how they use the proceeds of housing equity.   Wealthier borrowers are twice as likely to gift the proceeds of equity release while less affluent borrowers are looking to repay unsecured borrowing, boost their income and age-proof their homes.

Building on last year’s insights, Standard Life Home Finance’s Lightbulb Moments II research* collated 503 responses from those over the age of 55 who have considered equity release and those who have taken out a plan. The findings highlight that equity release has become a central financial tool for the over-55s, helping them manage their finances and provide much needed support for family members. 

Impact of Customers Annual Income on Equity Release uses:

The most common reason for taking out an equity release plan across all income brackets was to age-proof their homes or undertake essential repairs.  However, 43% of those with an annual income of up to £20,000 used equity release for this purpose compared to only 31% of those with an annual income of over £60,000.

Interestingly, the proportion receiving more than £60,000 per year using equity release to provide financial support for family or friends was almost twice (29%) that of those with incomes up to £20,000 (15%).

Additionally, there was a greater proportion of people on higher incomes using equity to repay mortgages (42% of those with over £60,000 in annual income vs 33% of those with under £20,000) and for estate or IHT planning (18% vs 1% respectively).

While the relative wealth of the customer played a role in how the equity was used, the value of the home is also likely to play a role with more affluent customers likely to have more potential funds to access.

How equity release customers spent fundsAllUnder £20,000£20,001 to £40,000£40,001 to £60,000Over £60,000
Home/garden renovations40%43%42%39%31%
Financial support for family/friends24%15%26%30%29%
Repay mortgage – repayment19%22%16%21%29%
Build a rainy-day fund18%13%13%18%18%
Repay interest-only mortgage14%11%16%16%16%
Extra monthly income14%16%14%4%13%
Repay credit card debt9%6%10%19%2%
Estate / IHT planning7%1%6%7%18%

(Please note that respondents could choose multiple options for this question, resulting in percentages totalling more than 100%)

Impact of Potential Customers Annual Income on Equity Release uses:

While those who considered equity release were driven by similar desires to those of actual customers – namely, home/garden renovations (24%), financial support for family and friends (19%) and repaying a mortgage (12%) – these needs were not as prevalent or pressing.

Instead, more potential customers looked to equity release to repay an interest-only mortgage (17% vs. 14%), for estate planning (10% vs. 7%) and extra monthly income (15% vs. 14%) than actual customers.  

Given the challenges the market has seen around rates, LTVs and product availability, it is perhaps not surprising that some customers chose to wait with almost one in five (19%) saying that they are waiting until conditions are more favourable and 8% were still considering their options.  A further 3% had been doing initial research and would revisit their choices when the funds were required.

How potential equity release customers wanted to spent fundsAllUnder £20,000£20,001 to £40,000£40,001 to £60,000Over £60,000
Home/garden renovations24%34%25%13%30%
Financial support for family/friends19%16%15%19%11%
Repay mortgage – repayment12%6%9%11%15%
Build a rainy-day fund5%3%2%6%4%
Repay interest-only mortgage17%9%17%13%19%
Extra monthly income15%22%13%9%7%
Repay credit card debt4%0%4%9%0%
Estate / IHT planning10%3%4%13%19%

(Please note that respondents could choose multiple options for this question, resulting in percentages totalling more than 100%)

Kay Westgarth, Director of Sales at Standard Life Home Finance comments: “Equity release has always been a multi-use product with customers often choosing to use their housing equity to fulfil a range of needs and desires.  The Lightbulb Moment research highlights the positive impact that these products can have on people with a range of incomes.

“Whether you are wealthier and want to support your loved ones or less affluent and looking to clear your unsecured borrowing and boost your income, there are many options and product flexibilities.  As we start to see green shoots in the market with lower rates, higher LTVs and better product availability, we anticipate that the 30% of people who put off making a choice will once again consider whether equity release is for them.

“The first step is to speak to a specialist adviser who will not only discuss all the features of modern equity release but also continue to encourage more consideration of other options such as retirement interest-only mortgages, downsizing or accessing other sources of funds.”

To offer your clients the very best solution for a brighter retirement, explore our Defaqto 5 Star rated Horizon lifetime mortgages today.

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