The bank of mum and dad is a phrase that emerged some years ago to describe younger people accessing funds from a traditional source.
This has recently extended to include the bank of granny and grandad, and perhaps for the first time a piece of research outlines the extent to which younger people are making withdrawals.

House builder Taylor has recently reported that based on interviews with 1,000 young people, one in 10 turned to their grandparents for help to buy a home. It’s a surprising statistic and one that reflects the difficulty that the younger generation is having in getting on the housing ladder.

Not specifically covered in the research, however, is the trend for the retired population to use equity release to help with financial demands. This is not a new trend although it has grown over recent years with many reporting the pleasure they receive in helping younger relatives.

Product developments last year included using parents’ equity to increase LTVs.

It’s only a matter of time before we see equity release developing in a similar way.

This represents a 15% increase on the £188.5m advanced in Q4 2010.

In addition, the number of plans sold rose to the highest level since the beginning of 2010 in Q4 2011 at 4,399.

Drawdown products accounted for 62% of the market in Q4 2011, while lump-sum mortgages accounted for 36% and reversions 2%.

Intermediaries sold 90% of all equity release plans by volume in the final quarter of 2011, compared to direct sales of 10%, which is the highest proportion brokers have accounted for since SHIP started tracking the data in 2003.

Andrea Rozario, director-general of SHIP, says: “We are delighted to report that not only did total advances reach a two-year high in Q4 2011 but this is the third quarter of growth in equity release sales. This is excellent news and puts the industry on track for a strong 2012.”

Its nationwide research shows that those who are still paying off their mortgage are more likely to regard their home as part of pension planning compared with those who own their homes outright.

The study shows 42% of those aged 45-plus paying off mortgages regard their property equity as part of their retirement income plan compared with 25% of those who have paid off their mortgage. more 2 life believes the study points to a growing acceptance that wealth built up in property can be used to supplement retirement income pointing to a potentially bright future for equity release. The younger homeowners are the more likely they are to regard their property as part of their retirement income planning, more 2 life’s research shows. Around 45% of those aged 45 to 54 believe their property is part of their retirement planning compared with 30% of those aged 55 to 64 and 22% among those aged 65+.

Jon King, Managing Director of more 2 life, said: “There is a shift in attitudes to with those who have mortgages realising that their property wealth should play a major role in retirement income.

Mr. Waterson – who will formally take up his position on the 01 April 2012 – brings a wealth of experience to the role from a career which included 18-years as a Conservative MP of which seven were spent as Shadow Pensions Minister. He takes up the role following the retirement of Laurie Edmans who served as Chairman for almost 6years.

SHIP underwent an extensive engagement process last year and Nigel’s new role will initially focus on helping the organisation to smoothly evolve from a provider focused body to one which represents the entire equity release industry. As part of his new role, he will also work closely with the existing Director General – Andrea Rozario – and other members of SHIP’s board to ensure that the new body continues to put consumer safeguards at the heart of industry developments.

Nigel has particular insight into the issues facing older consumers through his other roles which includes being former Chairman of the All Party Group for Older People and currently Member of the Society of Pension Consultants Council and Trustee at the International Longevity Centre.

Nigel Waterson, Chairman of SHIP, comments: ”This is a historic moment of opportunity for equity release – to boost incomes in retirement, fund long term care costs, and generally support a comfortable older age for many of our citizens. I am delighted to be involved in launching the new and reinvigorated organisation, and helping the industry meet these vital challenges.”

Andrea Rozario, Director General of SHIP, comments: “SHIP is currently undergoing one of the largest step changes of its 20-year history and we are therefore extremely pleased to appoint a new Chairman with the depth and breadth of knowledge that Nigel offers. I look forward to working closely with him over the coming months as we work to launch the new body and actively promote the role equity release can play in retirement planning.”

This compares with 25% of those who have repaid their mortgage.

Jon King, managing director of More 2 Life, said that it is seeing a shift in attitude among people with mortgages, who are realising that their property wealth should play a role in retirement income.

King said: “On the face of it, conditions for growth in the equity release market are perfect with a change in attitudes as well as factors such as rising longevity meaning people will need income to last longer if they want a comfortable retirement.

“However, the industry needs to innovate and make its solutions more flexible and relevant for customers and adapting to changes in lifestyle.”

The three biggest lenders, LV=, Aviva and Just Retirement, have all reduced their rates recently with LV=’s 0.10% reduction being the latest.

Lifetime mortgages are the most popular type of equity release. The interest rate is fixed for life removing the risk of interest rate hikes in the future.

The interest typically rolls up as most equity release borrowers don’t want or cannot afford a monthly payments. However Stonehaven’s Interest Select Plan provides the option to pay some or all of the interest for those who can afford it.

As always, please contact me if you would like any further information.

The IF thinks this could free up some of the 25 million empty bedrooms in England alone.

The campaign group is promoting “a proper land tax, to reflect the social cost of occupying housing, particularly housing that is larger than one’s needs”.

Surely where someone lives should be a matter for personal choice and not influenced by punitive taxes.

My experience is that many people own small to medium houses. They could move from a 3 bed semi to a 2 bed flat but the financial benefits in return for the loss of living space and a garden are debatable. Added to this is the sheer human cost of moving house; it is one of the most stressful things someone can undertake, whatever their age.

As we get older we have acquired more possessions; books, records and CDs, photos, paintings, football and concert programmes; it all takes up space.

Some will have family and friends to stay over so that spare room is needed.

This is why many choose to keep the family home and take an equity release plan to supplement their pensions and savings.

If someone wants to downsize they should be, and of course are, free to do so. I would be happy to see help and support offered to those wanting to move but who find the whole prospect too daunting. But the idea of a “land tax” to bully people out of their own homes is not palatable to me and would, in my view, be politically unpopular.

So strong are the emotional ties of a long term family home that some homeowners would be forced to borrow to meet any tax increases. It is a false assumption that people in larger houses are wealthy. Many of them have modest income and are very much “asset rich and cash poor”. Having to take equity release to pay tax would be a sorry state of affairs indeed.

David Wright

Equity Release Specialist & Managing Director

Sixty Plus

Rising inflation, a substantial part of which has been caused by sharp increases in energy prices, puts particular pressure on retired homeowners with fixed pension income.

A growing number of people are in fuel poverty, defined as spending more than 10% of income on heating.

Equity release can provide tax free cash from people’s homes enabling them to improve their standard of living and enjoy financial security.

This is another pointer as to why equity release plans are expected to rise in popularity.

People’s fragmented working lifetime, with few people working for one employer throughout their career, means they may not be accruing sufficient pension rights.

However pensions are not the only way to fund retirement.

Equity release, via a lifetime mortgage or home reversion plan, can be a a useful way of releasing some of the capital tied up in property to top up pension income.

The Bank of England’s target rate is 2%, and it expects it to target within two years.

The Retail Prices Index increased to 5.2% from 5%.

Retired homeownerswith a fixed income are particularly affected by inflation. Although state pensions and many occupational pensions are index-linked, annuities purchased from private pensions often provide a level income. This level income effectivelyloses value so long as inflation exists.

One solution to this problem is equity release. A tax free cash sum can be used to afford the extras that are otherwise out of reach. Furthermore a plan with a drawdown facility provides access to additional funds in later years should they be required.