A helping hand- how clients use equity release

Claire Barker goes through the results of the latest ERSA research on how clients are using equity release

Equity release is traditionally thought of as a product used by people who have a specific need or want. Whether this is to improve their standard of living or a specific purpose, it is usually for reasons that will improve their lives. However, research from the Equity Release Solicitors’ Alliance (ERSA) has found this is changing.

The negative effect the financial conditions are having on young people has been well documented, whether it is rising debt levels, rents and deposit sizes, or falling incomes and unemployment. But there is a direct correlation between this and increased demand for equity release, as older parents and grandparents look for a way to share some of the wealth tied up in their property to help out their relatives with important life payments.

ERSA’s research found a general upsurge in demand coinciding with the most recent economic slide, and that almost two thirds of parents and grandparents would consider equity release to help out their children financially.

Younger generation

In this climate, it is natural that many parents and grandparents whose underlying wealth has not been as affected, especially in areas where property prices have held strong, would want to help their relations out financially.

However, many do not have the ready disposable cash to give to their loved ones. This is where equity release is helping. Homeowners from the baby boomer generation have benefited from the housing boom over the past 25 years and often have a large amount of wealth tied up in their property. Equity release can help them to unlock, to gift to their children or grandchildren.

The Council of Mortgage Lenders has reported the number of people purchasing their first property without financial assistance has fallen by 83% and their average age is 37, compared with 29 overall. Possibly as a result, ERSA found the most common financial hurdle people would use equity release for is to help out younger family members with a housing deposit, with more than half the people questioned considering this.

However, it is not just housing related difficulties that are driving some of this increased demand for equity release – another increasingly popular use for equity release is to assist with university tuition fees. A third of respondents indicated they would consider equity release to help out with these. The well-publicised rise in fees was implemented at the start of this academic year, when most fees tripled to the maximum £9,000 per year.

This leap in the required funds to get a university education has the potential to bar some potential students from taking a degree, and saddling those who do with a significant amount of debt before they even begin working. The so called ‘graduate premium’ of how much more a graduate will earn in their life in comparison to non-graduates is often quoted at around the £100,000 mark.

Given this, for many parents and grandparents releasing some of the wealth from their property to help with this initial cost is an investment that will be of benefit to their loved one(s) for the whole of their lives.

Opportunity

Demonstrating the scale of the opportunity for advisers here, 70% of parents or grandparents would be comfortable releasing more than £10,000 in equity from their property to help out a family member.

Against this background, ERSA’s tracking research on demand for equity release in general over the past 12 months shows that the percentage of people considering it has seen an increase of 90% from 20% to 38%. This was almost matched by a drop of 16% in the number of people saying they definitely won’t use it, down to 27% from 43%.

Crucially for advisers, just 8% of people said they were most recently made aware of equity release through a financial adviser, meaning that for those that are qualified to advise in this area there are many potential clients out there, looking for professional advice.

Given that equity release for any purpose will have an impact on people’s estates, it is vital that people take financial advice from professional advisers and also legal advice from solicitors to ensure that they understand all the consequences of taking this step and are comfortable with them.

Claire Barker is chair of the Equity Release Solicitors' Alliance