News Review: Equity Release


Getting to grips with the spending review will be tough by


Andrea Rozario director general, SHIP


With summer holidays an increasingly distant memory, winter is already creeping up on us. indeed, it is pretty much already here – however, this year feels a little bit different from usual. amidst the annual political party conferences, we have seen the opposition elect a new leader and announce a new shadow cabinet, and had the spectre of the comprehensive Spending review blighting many jolly seasonal “networking” events. over the past month, we


have started to get a sense of what is coming, in the form of the announced changes


to the benefits system, which will see the current complex multitude of benefits replaced by a single universal credit. Hopefully this will help to simplify the system meaning that those who are entitled to support are more easily able to navigate the process. However, who should bear the brunt of the costs? Surely, the answer is the “most financially able” but who exactly is that? age uK released a pre-Spending


review


call to action, urging the government not to hit those who are elderly and more vulnerable. according to their research, carried out with tim Horton, research director at the Fabian Society, and Howard reed, director of Landman economics, the over-75s will be hardest hit


While some people can look forward to true ‘golden years’, another piece of research released this month came from LV= who found that many over-50s are intending to rely upon their home to fund their retirement. According to their figures only 19% of over 50s still in work feel that they will have enough to retire on, with nearly 23% of them planning to use the equity in their homes to fund their retirement. Their fears that their pension pots will not prove sufficient are not unfounded – Aviva found that the UK had the largest “pension” gap of any country in Europe, with a massive shortfall of £318 billion annually. With figures like these it is clear that people will have to look elsewhere in order to find the money to see them through their “golden years” – unless they can afford to put away the £10,300 a year necessary. It is not surprising that as we edge closer to the


predicted “pensions crisis” that people should look for other ways of financing their retirement. This stage of life should be enjoyed, rather than a cause of concern. However it is clear that alternative sources of income need to be considered, one of which should be how to use housing equity.


While most advisers and pundits agree that 10 mortgage introducer NOVEMBER 2010


relative to their incomes by the planned cuts. the age uK report found that they will lose £2,200 worth of public services per year by 2014-15 - equivalent to a sixth (14%) of their household income (in terms of cash) – as a result of cuts to housing and social care. i do hope that when i come


to next month’s article that i can write about how the cuts will reduce unnecessary expenditure, meaning that spending can be directed where it is really needed. it is also vitally important that the resources are still there to provide information and guidance for those who are trying to navigate the complex benefits system – so blanket cuts may have caused more financial issues than initially thought.


The age of using properTy as a pension could be ending


consumers should consider how to use their housing equity as part of their retirement planning, Grant Shapps – Minister of State for Housing and Local Government – appears to disagree. Indeed, he recently stated that “your home is a home, not a pension”. However, while we agree with him completely that a variety of assets built up over a lifetime should be used to finance retirement and people should not rely solely on housing equity, many simply don’t have that option. For a lot of people - especially those who won’t be getting a public sector pension – their house is their biggest asset and using their property is their only opportunity to improve their standard of living in retirement. Therefore, I hope that this comment was taken out of context rather than as any indication of future policy.


The industry is becoming more and more relevant with each announcement about the pensions crisis. Indeed, the interest from consumers is there, but at the moment there needs to be a greater sense of working together from providers, advisers and the Government. If this happens, people will feel more confident finding out if equity release or downsizing – for that matter – is the solution to their financial woes.


BUYING PROPERTY IS GETTING HARDER


Many young people are still carrying around student debt and have families of their own to pay for in addition to aspiring to getting that crucial first foot on the property ladder. Last month the Council of Mortgage Lenders released research figures that highlighted key concerns about the UK housing market. These found that 80% of people believe that young people’s inability to buy is a problem, and 47% believed it is the most pressing housing issue there currently is. Furthermore the CML highlighted the impact of the FSA’s responsible lending proposals, and found that a large number of mortgages that were taken out between Q2 2005 and Q1 2009 would not have been granted – even though they have shown no signs of payments lapsing. These tougher criteria will only serve to make the struggle facing prospective first-time buyers even worse.


Looking to the future, the figures from CML found that 80% of people thought it unlikely or very unlikely that the government could improve first-time buyer affordability. If this is the case then for many people monetary gifts from more established family members may be the only way in which they can purchase property.


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