Equity release is growing in popularity as a way to boost income in later life, and given that house prices are rising so rapidly, it's little wonder. Homeowners are realising that they can unlock a valuable amount of equity from their home without needing to downsize, and as a result, the value of this form of lending has hit a new record.
New figures from the Equity Release Council have revealed that equity release lending hit a new record in 2015, with the year-end results showing that annual lending in the sector totalled an impressive £1.61bn, the highest the sector has ever seen and an increase of 16% from the £1.38bn lent in 2014. It also means that lending has more than doubled in the last four years, recovering from its post-recession downturn, and has surpassed its pre-downturn peak (£1.21bn in 2007) by 33%.
Interestingly, much of this was driven by a surge in drawdown lending towards the end of the year. Rather than receiving a lump sum, this method allows homeowners to draw funds from their home whenever they choose, making it a viable form of income – and even an alternative to a traditional pension.
Given the potential benefits, it's no wonder that this form of lending is rising in popularity: the figures show that lending via drawdown totalled £271m between October and December 2015, the largest quarterly total since this product was first available in 2004. In fact, 70% of new plans agreed in the final three months of 2015 were drawdown, up from 63% in the preceding three-month period, "as more customers opted to withdraw their housing wealth in stages to boost their retirement income as and when they need it", it said in the statement.
Furthermore, as well as equity release lending as a whole reaching a new record, annual drawdown lending for 2015 was also the highest ever seen, standing at £961m. It accounted for 66% of new plans agreed during the year, while lump sum lifetime mortgages made up 34% and home reversions plans accounted for less than 1%; traditionally, lump sum mortgages had been the preferred choice, so this signals a clear change in dynamics for the sector.
"These year-end figures are the latest sign of growing reliance on housing wealth as a key pillar of later-life financial planning," said Nigel Waterson, chairman of the Equity Release Council. "The rising popularity of drawdown has been one of the success stories of the last decade."
He points out that many new product features could be fuelling the popularity of equity release, with options that allow customers to protect a percentage of their equity as inheritance, make part-repayments of capital or make interest repayments on their loan all available, which could open up equity release to those who may have been previously concerned about leaving their children without an inheritance.
Does it sound like something that could work for you? Many homeowners are realising the benefits, but as with any financial product, it won't be for everyone, which is why finding out more about it and seeking financial advice is absolutely vital.
"Housing wealth is often people's greatest asset and it makes sense for equity release to be on every homeowner's checklist to consider as part of their retirement and estate planning," added Nigel. "[But] at the same time, it is not suitable for every circumstance, which is why professional financial advice and independent legal advice are essential so that customers understand how the products work, and what they can offer."
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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