Redistributing wealth to younger generations and paying for care
Many older homeowners are looking to unlock the equity in their properties to address a range of financial needs as they age. Research shows that more than three in five (61%) UK homeowners, which equates to approximately 18.7 million individuals, are contemplating some form of equity release[1].
By leveraging the value of their homes, these homeowners aim to bolster their spending during retirement. This shift marks a notable increase from the 57% of people who shared this sentiment in 2021, indicating a rising awareness and acceptance of equity release as a viable financial strategy for retirement planning.
What is equity release?
Equity release is designed for homeowners aged 55 and over. There are two main types:
Lifetime mortgage: The most common form of equity release is borrowing money secured against your home. This loan is repaid from the sale of your home when you die or move permanently into residential care.
Home reversion plan: You sell all or part of your property while continuing to live there until you die or move into long-term residential care.
Some homeowners opt for drawdown lifetime mortgages, allowing them to make several smaller withdrawals rather than one lump sum. This flexibility enables them to reserve funds for future needs and benefit from potential future rate cuts, as each withdrawal is charged at the prevailing rate at the time.
Evolution of retirement borrowing attitudes
The research also highlights a shifting attitude towards borrowing into retirement. Increasingly, homeowners believe it is becoming more common (39%) and acceptable (39%) to have a mortgage in later life, up from 34% in 2021. Only 26% of homeowners completely rule out the idea of accessing money from their homes when they are older.
Almost half (46%) of homeowners aged 55 and over now view property wealth as a means of satisfying later life needs. Furthermore, three in four (75%) individuals below the age of 55 are open to drawing on their property wealth in later life.
Key motivations for equity release
The primary motivations for considering equity release include meeting care-related costs (17%), boosting pension income (16%), and funding travel plans (15%). Supporting the financial well-being of younger family members also remains a significant priority.
One in seven (14%) older homeowners are interested in ‘giving while living’ by gifting money from their property wealth to help family members with a deposit for their first home. Moreover, another 13% want to gift money to younger relatives to support other financial goals.
Increasing demand for later-life borrowing
In the past, people expected their mortgages to run only for the specified term. However, changing attitudes and an increased acceptance of borrowing into retirement have driven ongoing demand for these financial products.
Coupled with a decline in pension provisions, savings, and longer life expectancy, there is a rising need to borrow in later life. People want to redistribute their wealth to younger generations, pay for care, replace their mortgages, or fund various lifestyle goals.
Source data:
[1] Research by the Equity Release Council – 28/05/2024
