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The Actuary The magazine of the Institute & Faculty of Actuaries

Growing number of homeowners misunderstand equity release

An increasing number of UK homeowners do not understand how equity release works, despite £2.8bn in lifetime mortgages being lent by the end of the third quarter of 2019.

Confusion around equity release found ©Shutterstock
Confusion around equity release ©Shutterstock

That is according to research by Canada Life, which, after surveying over 1,000 homeowners, found that 15% wouldn’t use equity release because they don’t understand it.

This is a threefold increase on the 5% that said the same thing back in 2016, and makes a lack of customer understanding the second most popular reason for not using equity release.

Fear of losing control over a property is the number one reason homeowners choose not to use equity release, cited by 21% of respondents, up from 19% in 2016.

"Some people are put off the product because of comments by friends or family members," said Alice Watson, head of marketing and communications at Canada Life Home Finance.

“To make more people aware of how lifetime mortgages work, and how they have evolved, the industry needs to work harder to address consumers’ myths and misconceptions."

Despite the confusion around equity release, it was also found that two in five homeowners expect to use the equity accumulated in their property in the future.

This comes after separate research by Canada Life suggested that the equity release market is likely to expand in 2020 as homeowners look to pay off debt.

After polling 100 independent financial advisers last month, it found that 69% believe rising debt among retirees will be the second-biggest driver of equity release demand next year.

This is more than double the 31% of advisers that said the same thing when surveyed in 2018.

Canada Life also found that 49% of equity release customers paid off residual mortgage debt this year, while 23% used it to consolidate unsecured debts.

“In 2019, we’ve seen more consumers perceive their wealth in a holistic manner, acknowledging the role that their property can play in their financial plans," Watson continued.

"However, there is more work to do. The industry must continue to show older homeowners how they could improve their retirement by accessing the wealth stored in their home.”

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