The struggle facing first-time buyers in amassing a sufficient deposit has been well-documented, but what has been less publicised is how they eventually accumulate the necessary funds. With savings rates at historically low levels and the rising cost of day-to-day living limiting what potential purchasers can put into their deposit fund, help seems in short supply. Whereas traditionally parents may have donated a sum to their offspring to ease the passage to home ownership, more often than not they are now facing their own financial difficulties and are unable to be as generous as they were in the past.
All is not completely lost however, as our research into the reasons why people utilise equity release reveals a marked increase in the number of individuals using our plans to gift cash to their family, in particular their grandchildren. The Bank of Mum and Dad may be a pale imitation of its former self, but Gran and Granddad’s Building Society is alive and kicking.
Our analysis of plan take-up showed that instances of such gifting had more than doubled in the 12 months to August 2012. Other reasons that showed an increase in popularity included using the money to supplement income and maintain lifestyle, funding long-term care and paying for the costs of divorce settlements. As heartening as it is to see grandparents helping out their families in this way, it is fair to say that this rise in gifting – as well as the other reasons that have become more common – are as much a sign of the tough economic times as anything else.
While there has been a substantial increase in hitherto under-utilised reasons for releasing, the main motivators for accessing home reversion plans remain the same. Repaying a mortgage and funding home improvements are the two most popular usages, followed closely by debt consolidation. In addition to these stock responses, other major reasons cited by customers included funding travel, car purchase, topping up emergency funds and one individual even explained it was to finance the acquisition of a boat. If one thing emerged from the analysis, it is that you can’t typecast equity release plan holders and that most possible uses you can think of have been thought of by savvy older homeowners before now.
As well as proving to be a useful study for our own purposes, this research also serves to give equity release advisers more ammunition in their discussions with potentially interested parties. When it comes to finances, many individuals – particularly older homeowners – are unwilling to break the mould or use products for slightly unconventional reasons, but if they can be reassured others have already been there and done it, then it helps to allay any possible concerns.
Having such findings available also dismisses the preconceptions some people may have about equity release being one-dimensional or only of use in certain circumstances. As the sector and its products continue to evolve, hopefully so too will the way in which it is regarded. With no sign of first-time buyer affordability easing any time soon and no magic cure to the long-term pensions and care crises, previously niche reasons for releasing are only likely to increase in popularity.
Chris Prior is manager of sales and distribution at Bridgewater Equity Release
