The rise and rise of equity release

The popularity of equity release as a way of generating money to fund living in retirement has grown massively in recent years and so has the number of products available to access it.

Figures released by the Equity Release Council show that the market rose by 8% in the third quarter of the year with thousands of homeowners unlocking £11 million of property wealth a day.

£988 million

The total amount of funding provided to the over-55s between July and September was £988 million and 33,000 new customers have been added to the sector over the year.

A statement from the council said: “The money unlocked is used for a wide range of purposes, including supplementing pension incomes, providing a ‘living inheritance’ to family, making home improvements or age-related adaptations, paying off existing mortgages or other debt and meeting other regular or one-off expenses.”

Growing popularity

The number of products in the market has been growing massively too, reflecting the growing popularity equity release. Research by Key Partnerships has shown there were 86 products available in 2017 which grew to 314 by October this year.

The number of features available in those products has also grown. Jason Ruse of Key Partnerships said: “Guided by their advisers, consumers can now choose the product which ideally fits their circumstances, choosing to repay interest, make one off capital payments or protect their family’s inheritance as they see fit. This is great news for customers.”

What is equity release?

Equity release is a way of releasing cash from your home without having to move.

There are two basic options: a lifetime mortgage or a home reversion plan.

The lifetime mortgage is by far the most popular method and is available to all homeowners 55 and over. The householder can borrow an amount of money using the house as surety and does not have to make any monthly repayments.

Instead the interest is rolled over and becomes payable when the owner dies or goes into long term care.

Newer versions of the product allow the owner to ‘drawdown’ cash as and when they need it, up to an agreed limit, and pay back the interest as you go.

Qualify

To qualify for a home reversion plan the applicant has to be 65 or over. The homeowner is provided with a tax free lump sum by the lender for a portion of the house at below market value.
The borrower can then live in the home rent-free until they die and when the house is sold the proceeds are split between owner and lender on a percentage basis.

Different products

With so many different products available. each having different features, the Equity Release Council recommends that householders take financial advice before making any decisions.
Chairman David Burrowes said: “As a nation with an ageing population and a growing need to support longer lives, it is important not to overlook property wealth in modern retirement planning conversations.

New solutions

“Today’s equity release market is offering new solutions to fund later life by combining rigorous consumer protections with more product choices and flexibility to help people meet their financial needs and goals.
“The result of buying property and making mortgage payments during their working lives is that bricks and mortar become many people’s single biggest financial asset when they reach later life.
“Industry, regulators and government must continue to promote and encourage lifelong savings habits and support consumers to take a joined-up approach to later life planning – one that takes a holistic view about consumer choices, needs and outcomes and considers all wealth and assets into account.”