Equity release is showing clear signs of a resurgence, with rising house prices giving retirees the chance to release more cash than ever. Not only did equity release lending hit record levels last year, but it's on course to do the same again – so could you benefit?
Let's start by looking at what equity release actually is. In a nutshell, it's a way to unlock a portion of the value (or equity) you have tied up in your home, either to provide a regular income or a lump sum payment, and you can continue to live there without making repayments. Interest is still charged during this time, and the loan will be repaid on your death or the sale of the property. Find out more about equity release, including the benefits and risks involved, by reading our guide.
Equity release could be appealing to many retirees, so it's perhaps no wonder that this form of lending is on the rise. In fact, latest figures from Key Retirement show that the value of equity release lending hit £753m in the first half of the year, up from £641m in the first six months of 2014, marking an increase of 17% year-on-year.
The average amount being released per customer is also increasing – the typical customer now releases almost £68,500, an increase of £3,500 from this time last year – as is the number of plans sold, with the six-month total climbing to 11,007 (up 10% year-on-year).
Arguably, the combination of rising house prices and the fact that many retirees could have small pension pots has fuelled the popularity of equity release, with many realising that their home really is their biggest asset. Of course, this isn't the only way you can benefit from your property – downsizing, for example, could be a great way to free up some cash while still fully owning your home – but it can't be denied that it's worth considering.
"Property wealth is making a massive contribution to retirement planning," said Dean Mirfin of Key Retirement. "The average amounts released (£68,500) are more than 50% bigger than the average pension pot and are also tax-free, highlighting the advantages of using property wealth in retirement. Cuts in pension allowances and contribution levels, plus the review of pension tax treatment, underline the fact that property investments are major assets that should be considered as part of anyone's retirement planning."
Let's say you took the plunge and purchased an equity release plan. Just what would you do with all that extra cash? Well, if you're anything like the respondents to the Equity Release Market Monitor, you may want to use it to improve your home or garden. In fact, 58% of respondents used some or all of their equity wealth for this very purpose, while 28% used it to pay for holidays and a particularly generous 25% gave some cash to friends or relatives.
A further 23% paid off their mortgage – an increase on the 20% who did the same last year, suggesting that mortgage debt is becoming a more pressing concern – while 29% used it to pay off credit cards or other loans. Really, this is a sensible solution, because who wants to be retired and still paying off debt? Luckily, rising house prices could mean that fewer people have to, with equity release customers also becoming wealthier (the average price of a customer's home has risen by 9% in the last year, up from £249,108 to £271,248).
If you think equity release could be for you, it's vital to get the support you need to be absolutely certain. Start by finding out more about equity release and what it entails, and ideally speak to an independent financial adviser to ensure it'll meet your needs. Ready to find out more or discuss the options? Get in touch with our equity release service for a no obligation chat.
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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