In partnership with FNZ, Nokkel published research conducted by the lang cat on the growing importance of house wealth to financial advisers in the UK. This research comes at a crucial time for the market, with growing concerns about insufficient savings among current and soon-to-be retirees and increased regulatory scrutiny.
Did you know that more UK personal wealth is accumulated in property than anything else?
The Financial Conduct Authority’s new Consumer Duty rules set a higher standard of protection across the UK financial services sector. This has big implications for retirement advice: financial advisers will need to have a much deeper understanding of a client’s finances and assets to deliver the most valuable and tailored advice. One long-neglected element of this full picture is an understanding of a client’s house equity and therefore their property wealth. Equity release refers to a way of releasing cash from a property without having to sell the property, and can be an important tool when planning for retirement.
A Looming Pensions Crisis
Pensions income alone is no longer enough – according to Scottish Widows’ latest, a third of Brits may retire without enough to pay for essential bills, 22% of middle-income earners expecting to retire in the 2050s are struggling financially, according to a recent Aviva report. Further, the report found that 11% of respondents are unsure about the income needed for a comfortable retirement and 66% are concerned they aren’t saving enough for retirement already. A pensions crisis looms and outside of private pensions, more UK personal wealth is accumulated in property than anything else, says the. People need a clearer picture of the full extent of their finances if they are to retire with enough money, and equity release is a sleeping giant.
Of course, it’s easier said than done. There is a significant challenge for advisers: a lack of consistent and reliable property data upon which to base robust advice around releasing equity from a house.
Connecting the dots – property data and its use in financial advice
For decades, there has been a lack of data sharing across different players and parts of the industry. This has in turn hindered financial advisers when it comes to understanding house equity and integrating property wealth insights into financial planning.
But this is changing. Market players with huge amounts of data, like local councils, HM Land Registry, property-selling platforms, and financial institutions, are working to bring transparency to the industry. This is being driven from the top – through the Geospatial Commission’s plans to improve the UK’s property data system and HM Land Registry’s plan to digitise the industry and empower better data sharing. This is all good news for financial advisers that need to start integrating house equity release into financial planning. Not to mention the Open Property Data Association which promotes and facilitates the open exchange of property-related data. This signals a positive shift for financial advisers looking to integrate house equity release into financial planning.
Additionally, non-traditional data points are also powerful drivers of meaningful valuations. A McKinsey study shows that when predicting house prices, nearly 60 per cent of the prediction power can come from non-traditional variables, such as data on surrounding services like shops, schools, and even coffee shops.
The Data Gap: challenges for advisers
While there has been progress in making reliable and accurate data available, financial advisers still have an integration problem. Without the ability to integrate a client’s house equity data into advisory software, advisers’ ability to deliver against the new Consumer Duty rules is hampered.
Advisory firms use different combinations of back-office software, with firms using an average of five systems in the process of giving advice. A report from Origo found that 85 per cent of advisory firms believe that a lack of integration is a serious cause of inefficiency within their businesses. Only by stitching all the data points together, can we be assured of quality property valuations, which are essential to get a complete picture of a client’s assets and overall wealth. Naturally, there is growing appetite from the adviser community for technological solutions to enable property data to be better incorporated.
Clients not having enough money for retirement is not only an immediate cause for concern, but an issue that may plague generations to come. With regulation increasingly focused on protecting consumers, house equity is essential to gaining a more complete understanding of a client’s financial situation and make informed retirement decisions.
Further, equity release is not only limited to addressing a growing retirement income gap; unlocking house wealth is an option for most homeowners to access funds to enrich retirement, or it can form part of a plan to pass wealth down as inheritance earlier. There are a variety of products available to help access the equity tied up in property – which, after all, is one of our most important assets, that many of us spend years working towards attaining.
However, to turn this into a reality, progress in deciphering relevant house equity insights from a growing pool of property data must continue, as well as addressing the issues with incorporating this data into accurate advice. Advisers that connect the property data dots and gain a deeper understanding of their clients’ financial situations will be the ones who don’t fall short of Consumer Duty requirements and thrive in the long run.
Want the full insights? Click here for the complete study by the lang cat, in partnership with Nokkel & FNZ Group.
