Equity Release Schemes and Equity Extraction by Elderly Households in Britain

Abstract

ABSTRACTThe policy and popular debates suggest that the housing equity of elderly home-owners has provided them with a considerable stock of wealth which will influence the future social structure of the United Kingdom, as wealth is transferred to a wider cross-section of British society through inheritance. While various estimates suggest that the distribution of intergenerational transfers of equity is set to widen in the future (Hamnett, Harmer and Williams 1991), it is not known whether the rate of growth of housing inheritance will continue at the pace set in the 1970s and 1980s. This is due to the process of equity extraction by elderly persons, largely from their housing assets. The extent to which one form of equity extraction (formal equity release schemes) has influenced future housing inheritances is the focus of this paper. Drawing on data collected during a postal survey of institutions offering formal equity release schemes, and secondary literature, we conclude that such schemes are unlikely to have a substantial impact on future intergenerational transfers of housing equity. The equity withdrawn under existing schemes is minimal and is likely to remain so due to lack of demand and inflexibility in the supply of existing schemes. In this paper we shall examine the participation of elderly persons in, and the market for, equity release schemes.