Equity release will become more popular to fund retirement

16 January 2009 / by Rachael Stiles
The demand for equity release products will increase in the near future as retirees look for other ways to fund their golden years, having seen their savings and investments lose much of their value due to the credit crunch.

Lifetime mortgages provider Just Retirement believes that the recession will improve people's confidence in equity release, and will see more people looking to unlock value from their homes as an alternative source of retirement income.

Pension funds have been hit hard by falling share values over the last year, and falling interest rates, currently at 1.5 per cent, have pushed down the returns that retirees are getting from their savings accounts and other investments, which they would ordinarily use to top up their pension.

Industry experts foresee little improvement for the markets in the immediate future, which, coupled with the increase in unemployment, making it more difficult for people of retired age to secure additional income, will contribute to a rising interest in equity release this year, the firm says.

Many of those reaching retirement age will find themselves with less income than they expected, even those who have been frugal and saved all their lives while others spent and borrowed.

Some will have to delay their retirement to pay the bills, but might simultaneously be forced into early retirement as firms make job cut backs before some employees have had enough time to build up a sufficient pension.

These circumstances will combine to see people seeking other methods of securing their retirement income, Just Retirement says, looking to other assets available to them, and with the stock market the way it is, their homes might be the only things they own which hold significant value.

While the rest of the mortgage market flounders due to a cut in availability and lending, Just Retirement predicts that the availability of equity release schemes such as drawdown equity release will prove popular, allowing homeowners to remain in their homes and have access to funds while still leaving some value in the house for future use, and in the hope that property values climb back up.

"The picture may look bleak for those whose retirement is not currently meeting their expectations but there are options for a good many people and it is important that they get the right advice to help them make the best of what they have." said David Cooper, marketing and distribution director at Just Retirement.

"The availability of substantial equity in the home could dramatically improve standards of living in many cases, either by providing income explicitly or by freeing up income currently being used in other ways.

"This is not a new phenomenon: the treatment of property as an asset for use in retirement planning is gaining in acceptance, for specific uses, to supplement income, to combat the effects of inflation and provide for other needs. We simply believe that the current economic environment will accelerate this trend."

© Fair Investment Company Ltd