Equity release, a way for homeowners to release some of the equity built up in their home, is growing in popularity. Rising house prices have meant a lot of people have been able to quickly amass a decent amount of equity, while record low mortgage rates enabled many to pay off their mortgage quicker, too. Given that retirement incomes can be stretched, equity release (otherwise known as a lifetime mortgage) can be a valuable way for people to free up some cash – and more are getting in on the action.
According to figures from the Equity Release Council, a total of £325.7m was lent in the first three months of 2015, an increase of 3% year-on-year and the largest first quarter lending total ever recorded. The average value of equity release lending per customer stood at £66,747, up 4% compared with the previous three-month period and 1% higher than the average lending total in the first quarter of 2014, marking another record for a first quarter.
This means that people are releasing more from their property than they did previously, with the higher average lending figure coming despite low inflation and an ease in the cost of living – something that could indicate households are still struggling with their finances, said the Council. Nonetheless, the benefits of equity release are still being realised, and it can't be denied that it could offer some welcome respite for those who may be struggling.
"These figures show that the appetite for equity release continues to grow despite the potential uncertainty to peoples' financial planning decisions caused by the recent pension access reforms, " said Nigel Waterson, chairman of the Equity Release Council. "These have brought the topic of financial planning for retirement firmly to the fore and we hope this encourages people to seek financial advice to discuss the many options available to them, of which equity release is one."
The most popular method of equity release is drawdown, where you borrow a percentage of the value of your home as you need it, rather than taking a lump sum. A total of 3,176 such loans were advanced during the quarter at a value of £192m, marking annual increases of 5% and 4% respectively.
Lump sum mortgages, where you borrow a percentage of the value of your home in exchange for a cash lump sum, are slightly less popular, with 1,700 such products being sold in the three-month period at a total of £133.2m. Home reversion plans, where you sell a portion of your home at under market value and get a lifetime lease to stay in the property, remain the least popular option, accounting for less than 1% of the market.
Would you consider equity release? You'll need to seek plenty of support before you take the plunge, but if you're worried about how you'll fund your retirement, it could be worth thinking about.
"Despite sitting on large sums of property wealth, many are still struggling to make ends meet and are even suffering from sleepless nights or skipping meals as a result," added Nigel. "Equity release offers vital financial support for later life and allows retirees to dramatically improve their standard of living, with people accessing just a small portion of their total housing wealth in most cases.
"We believe that understanding of equity release has improved significantly over the last year and that equity release is now firmly established as a mainstream form of borrowing. This is especially true as older borrowers are increasingly turned away by normal mortgage lenders. I predict increased consumer demand and product innovation from providers over the coming year."
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