Equity release can offer valuable financial assistance in retirement - yet new research shows that two out of five in the over-50 age group don’t know what it means.
Home owners confused about definitions
Equity release can offer valuable financial assistance in retirement - yet new research shows that two out of five in the over-50 age group don’t know what it means.
The survey by Norwich Union - the UK’s largest equity release provider - reveals ignorance in the 50-and-over bracket about financial products related to their property:
- Forty per cent don’t understand the term equity release
- Just eight per cent know what home reversion plans are
- Only 21% of respondents know what mortgage-based equity release schemes are
When given descriptions of various types of mortgage plans, 12% of people suspected that home reversion plans involve them continuing to own their property. This is not, however, the case, as it allows the customer to sell all, or a proportion, of their home in exchange for a lump sum payment or an income, and then remain in the property as a tenant until they die.
A quarter of people quizzed also suspected that mortgage- based equity release schemes involve them selling a share of their home, when in fact the customer remains the owner of the property until they die. He or she borrows money secured on their property in the same way as with a standard mortgage, although the customer makes no repayments and interest rolls up on the loan. Upon the customer’s death, the outstanding mortgage debt is repaid from the proceeds of the sale of the property *.
To help educate customers about how equity release schemes work, Norwich Union has published a consumer guide entitled ‘Unlocking Your Future – Equity Release Made Easy’, which can be obtained free of charge by calling freephone 0800 122 876. This impartial guide explains the types of products available and what’s involved in taking out an equity release scheme.
Paul Stokes, head of marketing for Norwich Union Equity Release, said: “For most of us, the home is our most significant asset. And with equity-based investments having been hit by recent falls in world stock markets, more and more people are looking to the equity in their home to fill gaps in their retirement finances.
“People are also living longer, so there is a requirement for people to stretch their retirement pot even further.
“If sold appropriately, equity release schemes represent the ideal tools to unlock a valuable addition to customers’ retirement plans and their income stream. The financial opportunity comes not just from the equity release itself, but also from the fact that the cash it will generate can be used to service numerous financial needs in retirement.
“However, we feel that caution must be exercised: equity release can be great for some people, but such schemes should be regarded as lifetime plans and aren’t suitable for everybody.
“Our survey highlights the lack of awareness and confusion surrounding home reversion plans and mortgage-based equity release schemes among the over 50s. This clearly highlights why full regulation, as proposed by the Government in last month’s Pensions Green Paper, is absolutely essential in protecting consumers.
“We have always strongly supported a regulated regime. We want to see all players in this marketplace forced to apply robust regulatory principles to selling all equity release plans, to ensure customers fully understand the implications of their purchase. We also want them to encourage customers to discuss their plans with their family before going ahead.
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Notes for editors
* Norwich Union’s ‘No Negative Equity Guarantee’ ensures that customers will never owe more than their property is worth. We will never ask the customer or the customer’s estate to repay more than the open market value of the property.
The survey was conducted by H2B during October 2002 amongst 346 consumers aged 50+, who owned a home worth at least Ł50,000.
- Norwich Union is the UK’s largest insurer. It is the UK’s largest provider of life, pensions and investment products and one of the leading IFA providers. IFAs provide around 75% of the company’s long-term savings business.
- Norwich Union has strategic alliances with building societies and other leading UK brand names including Tesco Personal Finance and The Royal Bank of Scotland Group.
- Norwich Union’s news releases are available on the Aviva plc website at www.aviva.com
- A selection of images are available from the Norwich Union Newscast site at www.newscast.co.uk
Press office contacts:
Ian Beggs - 08703 66 68 71 / 07790 487 533
James Evans - 08703 66 68 78 / 07790 487105
Louise Goffee - 08703 66 68 70 / 07810 057 362