With those approaching or already in retirement on the brink of being given substantial autonomy in the use of their pension pots, an industry spokesman was reported as saying that there is an opportunity for innovation in the gap between mortgage and equity release products.*
The statement will presumably be endorsed by the Director General of the Council of Mortgage Lenders (“CML”), Paul Smee, who has initiated talks between mortgage lenders and the Equity Release Council (“ERC”), the body set up to safeguard the interest of consumers entering into Lifetime Mortgage and Home Reversion plans. Mr Smee added that the changes announced by the Chancellor in the 2014 Budget will necessitate a “whole different approach” to funding retirement.** Nigel Waterson of the ERC has commented that the ERC is delighted to be working with the CML to build closer relationships with residential mortgage lenders.
It would seem therefore the removal of the obligation to purchase an annuity, which has apparently reduced annuity sales by as much as 50%, has been the catalyst for the leading Providers to reassess the features of their retirement products. This review represents the best chance for Equity Release plans to become at last recognised as mainstream financial products, and with a significant share of the mortgage market via hybrid plans which may soon be developed. Indeed, in a recent report, Legal & General (“L&G”) have encouraged the Government to start actively endorsing Equity Release, and at present, L&G are not even a Lifetime Mortgage provider.
With the financial pressures facing those at or in retirement increasing all the time, clearly something needs to be done to help retirees achieve a reasonable pension income. According to the National Employment Savings Trust, an income of at least £15k per annum is needed to avoid insecurity in retirement. The state pension is only at half this level, and Equity Release is already commonly used as an effective method of supplementing the income of retired homeowners.
The prospect of a wider range of Equity Release plans being endorsed by the Government, the CML and the major Providers is encouraging news for every homeowner who has concerns about being able to achieve a reasonable standard of living during retirement.
To learn more about existing Equity Release plans and the new ones as they become available, Bower offer impartial whole of market advice including, if requested, and a free consultation in the comfort of your own home.
*Financial Reporter 21/5/14 **Mortgage Solutions 2/5/14