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Older homeowners are driving equity release

Older homeowners are driving equity release

Category: Retirement

Updated: 24/09/2015
First Published: 23/09/2015

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Equity release can be used as a way to free up a valuable amount of cash from your home, and it seems that a growing number of people are getting on board. Interestingly, it's older homeowners who are the driving force behind the rising popularity, with those aged 65-74 accounting for a record share of new plan sales. Are you one of them?

Retirement cash injection

The figures, from the Equity Release Council's latest Equity Release Market Report, show that this age group saw a 5% increase in customer numbers in the last year, compared with a 2% annual rise across the market as a whole. This suggests that more and more people are using their housing wealth to boost their finances in later life, an assumption backed up by the fact that the value of equity release lending rose by 11% year-on-year, up from £641m in the first six months of 2014 to £710m this year.

In fact, customers aged 65-74 took out 58% of new plans agreed between January and June this year, up from 56% in the equivalent period last year, making it the highest share recorded since tracking began in 2011. This easily outweighs all other age groups: one in five new plans taken out during the six-month period were by customers who had passed their 75th birthday (22% were aged 75-84 and 3% aged 85+), while customers aged 55-64 accounted for just 18% of new plans, down from 20% a year previously.

The figures highlight "the growing appetite among elderly homeowners for unlocking their property wealth", said Richard Eagling, head of pensions at Moneyfacts, and a number of factors could be fuelling the uptake. "Rising house prices and a growing appreciation of the safeguards inherent in modern equity release offerings have improved confidence in the equity release sector, while the lower lifetime mortgage interest rates that we are currently seeing have made it a more attractive option," he added.

Given the rates that are on offer, it's little wonder that equity release is proving so popular. Our own research shows that the average interest rate charged on a fixed rate lifetime mortgage currently stands at just 6.11%, down from 6.31% a year ago, and significantly lower than the rate of 7.12% recorded five years ago. "These low equity release interest rates look even better value for money when viewed against the much higher interest rates charged on some of the more traditional forms of borrowing," added Richard, and you can see these figures in more detail below.

Lifetime equity release averages (based on rate not APR) Sep-15
Lifetime equity release fixed rate deals 6.11%
Lifetime equity release variable rate deals 2.42%
Lifetime equity release average combined (fixed and variable rates) 5.87%
Number of lifetime equity release fixed deals (all options inc cashback) 43
Number of lifetime equity release variable rate deals 3
Total number of lifetime equity release deals 46

Source: Moneyfacts.co.uk 22.9.15

So, if you need a cash injection, could this form of borrowing be worth considering?

What type of plan would you choose?

If you're considering equity release, there are two key types you may like to choose between – drawdown (essentially, where you can release, or draw down, funds from your home as you need them), or lump sum (where you get the full amount of your plan agreement upfront). It seems that the majority of people are choosing drawdown, with 65% of all plans agreed in the first half of the year being for this format, compared with 35% of plans that were lump sum mortgages.

The popularity of drawdown has been steadily growing in recent years (51% of plan sales were for lump sum mortgages in the first half of 2007, for example), which "suggests that retirees are catching on to the idea of using their property as a 'cash-machine' to access wealth from their home as and when they need it", said Richard. "This is now a much more widely available option, with over two-thirds (72%) of lifetime mortgage providers now offering at least one lifetime mortgage product with a drawdown facility."

It really is a booming age for equity release at the moment, and considering house prices have been rising so rapidly in recent years, you could well have a large amount of equity tied up in your home that you may want to consider utilising. However, it's important to remember that equity release is essentially a lifetime mortgage, which means that you'll repay the loan either on death or on sale of the property, so it may not be a suitable option for everyone.

However, if you're looking for a way to free up cash from your home without downsizing, or simply want a boost to your retirement income, it could be worth considering. Contact our no obligation equity release service to find out more, and to see if it could be for you.

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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