Equity release products reduce due to Coronavirus | moneyfacts.co.uk

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 21/04/2020

Equity release lenders have responded to the Coronavirus crisis by withdrawing or making changes to their lifetime mortgages, such as lowering the maximum loan-to-value accepted, reducing maximum loan amounts and increasing interest rates. Between April 1 and April 20, the number of equity release products declined by 15%, according to data from Moneyfacts.co.uk. These have reduced from 426 to 360, a rate of three products being withdrawn each day of the month so far.

How has Coronavirus affected equity release lending?

Prior to the Coronavirus pandemic, the Equity Release Council (ERC) required all potential equity release borrowers to receive legal advice face-to-face. The ERC has adjusted this to reflect the current social distancing requirements, so borrowers can now receive this advice remotely via video or telephone. However, legal advisers must hold multiple meetings with borrowers, and these must all be recorded. The legal adviser must be able to effectively identify the client, check they have the capacity to enter an equity release contract, that all parties on the contract understand and agree and there is no risk of coercion taking place.
Valuations have also been restricted due to social distancing. Many lenders are now using automated valuations or desktop valuations where possible, although borrowers may find their valuations are lower than before the crisis as surveyors and lenders are more cautious due to the current climate.

Homeowners face retirement income shortfalls of £17,984

The current pandemic is placing increasing pressures on the finances of many households. Research from the ERC shows older homeowners aged 55 plus were struggling to add to their pension pots due to increases in the cost of living, the need to pay their mortgage, supporting their dependents and reductions in income. The research also identified this group wanted an annual retirement income of £35,196, compared to the average retirement income today of £17,212. One in six who have not yet retired expect to drawdown from their pension to make up this gap, while only one in five older homeowners who have sought information or advice about their finances in later life were prompted to consider releasing equity from their property. This could leave many retirees in the future cash-strapped but asset-rich. The ERC found that the amount that the average homeowner in England and Wales could release, in cash, from their property is £88,290.

Nearly half of those wanting equity release would still go ahead

Research from the website Over50schoices found that almost half of those who were interested in equity release prior to the Coronavirus pandemic would still want to want to continue with an equity release deal. While there are fewer lifetime mortgages available, there is still a range available from several different providers and the ERC shows many will have a deficit in retirement income that borrowers will still want to bridge. Before you release cash from your property should read our guide about how equity release works.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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