While the Coronavirus crisis has impacted most people, it is those who are just starting their careers or about to finish their working lives who have felt the biggest economic impacts.
Sectors where young people typically work – such as leisure and hospitality – have been impacted greatly by lockdown restrictions and, as a result, unemployment rates among 16-24-year olds rose by a staggering 14% between January and September 2020.
While things will recover, the harsh reality is the current crisis has pushed many young people’s financial goals even further out of reach.
On the other hand while older workers are also finding that the crisis has negatively impacted them, those who have already retired have fared better.
Indeed, those aged between 65 and 74 years old were able to save an extra £332 per month compared to those below the age of 30 during lockdown, according to figures from the Office for National Statistics (ONS).
Older homeowners have also benefited from a record year of house price growth. Key’s findings show over-65s saw their property wealth increase by more than £9,200 on average in the past year.
For these reasons, many older family members are now – more than ever – in a strong position to lend a helping hand to their younger relatives.
To this end, equity release is a viable borrowing option for many older homeowners to financially support their loved ones both over the short and long-term. However, further product innovation and development from lenders will be key.
Focus on lump sum products
According to Key’s latest Market Monitor, the average equity release cash gift totals £55,822, with one in four (27%) people using 22% (or £756 million) of the proceeds of equity release to support family and friends.
With the loan-to-value (LTV) that a lender is prepared to offer increasing as a person ages, many customers find that at the point the money is needed in order to take out a larger and more meaningful amount, a lump sum is their best option.
However, lump sum products come with their own challenges – not least of which the impact of compound interest if ad hoc capital or interest payments are not made.
If a greater number of borrowers begin considering tools like equity release to help them gift to younger relatives over the coming years, then lenders will need to consider how they can support this.
In a world that supports guarantor mortgages for first-time buyers, I can’t help but wonder if perhaps there might be room for a plan that sees younger relatives helping to meet some of the costs of the borrowing they benefitted from?
Further flexibility will be key
While customers entering the market now benefit from modern flexible lending features, the basic idea behind how a lifetime mortgage operates has changed very little over the last twenty years.
An older customer borrows a sum of money based on the value of their home, age and financial requirements which is paid back when they die or go into care.
Does this need to change? Not necessarily – and I do think we will see products that are recognisable as equity release into 2030 and beyond – but I also believe will see product innovation and further flexibility.
More customers are entering the market with needs that range from subsidising their children’s first property purchase to upsizing themselves so the market needs to change with them.
For example, currently only 14% of lifetime mortgages offer an inheritance guarantee, according to the Equity Release Council.
Inheritance guarantees provide borrowers with the reassurance that they can protect a proportion of their home’s future value to pass on to loved ones, potentially their grandchildren having already helped their own children buy their first home with the equity they released.
Features like this are likely to become even more important as intergenerational wealth transfer – especially in a world dealing with the long term impact of the pandemic – could mean the difference between someone’s children and grandchildren becoming homeowners or missing out on that dream altogether.
We must also support our intermediary partners
In the US, it is increasingly commonplace for advisers to provide financial advice aimed at several generations of a family. While the natural British reserve may not see this happen here, we must support advisers as they look to be more holistic.
Webinars, marketing collateral and other resources need to be used to enable advisers to have these conversations with their clients – either the older borrowers themselves or the family members that need their support.
We also need to educate the borrowers so that they understand their options and raise it with their adviser if it isn’t part of the discussion already.
Ultimately, later life lenders are set to play an increasingly important role in the years to come, as younger and older generations navigate the fallout of the Covid-19 pandemic and look to solutions such as lifetime mortgages to help manage this.
To this end, it is vital that lenders focus on developing innovative and flexible solutions over the long-term so that families have the tools to hand to support younger family members – and help them achieve financial milestones.
Stuart Wilson is corporate marketing director at more2life
