Over 50s in the dark over equity release

Article date: 20 January 2003

Home owners confused about definitions

Equity release can offer valuable financial assistance inretirement - yet new research shows that two out of five in theover-50 age group don’t know what it means.

The survey by Norwich Union - the UK’s largest equityrelease provider - reveals ignorance in the 50-and-over bracketabout financial products related to their property:

  • Forty per cent don’t understand the term equityrelease
  • Just eight per cent know what home reversion plans are
  • Only 21% of respondents know what mortgage-based equityrelease schemes are

When given descriptions of various types of mortgage plans, 12%of people suspected that home reversion plans involve themcontinuing to own their property. This is not, however, the case,as it allows the customer to sell all, or a proportion, of theirhome in exchange for a lump sum payment or an income, and thenremain in the property as a tenant until they die.

A quarter of people quizzed also suspected that mortgage- basedequity release schemes involve them selling a share of their home,when in fact the customer remains the owner of the property untilthey die. He or she borrows money secured on their property in thesame way as with a standard mortgage, although the customer makesno repayments and interest rolls up on the loan. Upon thecustomer’s death, the outstanding mortgage debt is repaidfrom 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 MadeEasy’, which can be obtained free of charge by callingfreephone 0800 122 876. This impartial guide explains the types ofproducts available and what’s involved in taking out anequity release scheme.

Paul Stokes, head of marketing for Norwich Union Equity Release,said: “For most of us, the home is our most significantasset. And with equity-based investments having been hit by recentfalls in world stock markets, more and more people are looking tothe equity in their home to fill gaps in their retirementfinances.

“People are also living longer, so there is a requirementfor people to stretch their retirement pot even further.

“If sold appropriately, equity release schemes representthe ideal tools to unlock a valuable addition to customers’retirement plans and their income stream. The financial opportunitycomes not just from the equity release itself, but also from thefact that the cash it will generate can be used to service numerousfinancial needs in retirement.

“However, we feel that caution must be exercised: equityrelease can be great for some people, but such schemes should beregarded as lifetime plans and aren’t suitable foreverybody.

“Our survey highlights the lack of awareness and confusionsurrounding home reversion plans and mortgage-based equity releaseschemes among the over 50s. This clearly highlights why fullregulation, as proposed by the Government in last month’sPensions Green Paper, is absolutely essential in protectingconsumers.

“We have always strongly supported a regulated regime. Wewant to see all players in this marketplace forced to apply robustregulatory principles to selling all equity release plans, toensure customers fully understand the implications of theirpurchase. We also want them to encourage customers to discuss theirplans with their family before going ahead.

-ends-

Notes for editors

* Norwich Union’s ‘No Negative EquityGuarantee’ ensures that customers will never owe more thantheir property is worth. We will never ask the customer or thecustomer’s estate to repay more than the open market value ofthe property.

The survey was conducted by H2B during October 2002 amongst 346consumers aged 50+, who owned a home worth at least £50,000.

  • Norwich Union is the UK’s largest insurer. It is theUK’s largest provider of life, pensions and investmentproducts and one of the leading IFA providers. IFAs provide around75% of the company’s long-term savings business.
  • Norwich Union has strategic alliances with building societiesand other leading UK brand names including Tesco Personal Financeand The Royal Bank of Scotland Group.
  • Norwich Union’s news releases are available on the Avivaplc website at www.aviva.com
  • A selection of images are available from the Norwich UnionNewscast 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

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