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Could you release the equity in your home?

Could you release the equity in your home?

Category: Retirement

Updated: 24/04/2014
First Published: 24/04/2014

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 It is now over 6 months old so the content may be out of date.

Property prices have surged over the last few years, and that means a lot of people could have built up a valuable amount of equity in their home – which could go some way to explaining the growing popularity of equity release. In fact, according to figures from the Equity Release Council, the start of 2014 has been record breaking for the industry with it having its busiest (and most profitable) start to any year.

In the first three months of 2014, total lending through equity release amounted to a record £315.5m – an increase of 2% from the final quarter of 2013, and up an impressive 35% year-on-year. Not only is this the most lending in any quarter since 2007, but it's the largest in any first quarter since recording began in 2002.

It seems that people are catching onto the idea of using equity release as a valuable means of tapping into the value of their home, with many doing so to fund a more comfortable retirement – either through clearing debts (a popular choice for those coming to the end of interest-only mortgages), making home improvements or simply as a way to increase their monthly income.

A lot of people are turning to the lump sum mortgage scenario, where the lender will offer a one-off loan based on the value of a proportion of your home (so if your home's worth £200,000 and you take a 20% lump sum, for example, you could get £40,000 outright, charged at a set interest rate which is compounded over the years). The total value of lump sum products grew by 50% year-on-year to £131.8m in the first three months of the year, with these mortgages accounting for 42% of all equity release lending in the quarter.

However, taking an income through equity release is still the most popular option, with the total value of drawdown products – where the borrower takes a smaller amount at the outset and draws down further amounts as required – reaching £182.5m in the first quarter. Interest is only charged on the amount of money you've taken, and as it's often smaller there'll be less to pay over time.

Home reversion plans meanwhile, where you hand over a share in your property for a cash sum, are the least popular, accounting for just £1.2m in the same three-month period. However, the popularity of these plans is growing rapidly, with the figure being an increase of 142% from the last quarter of 2013.

No matter which option you go for, it could prove to be a great way to help fund your retirement. Nigel Waterson, chairman of the Equity Release Council, commented: "For a generation who have huge amounts of wealth tied up in property but a shortage of savings to support their retirement, equity release is providing financial stability to a growing number of older homeowners. [It's] taking on a growing role among the financial products to consider for retirement, with customers making the most of the flexibility to use their housing equity as they please."

Rising property prices could have a lot to answer for, and although this trend may not be so welcome to those attempting to get on the property ladder it's certainly beneficial for owners. Thanks to higher prices it means borrowers typically release only a quarter of the total value of their property to get "a substantial sum to help boost their income, clear existing debts, take on home improvement projects or pursue new activities and interests in later life – while still allowing many to preserve an inheritance to leave behind," said Nigel Waterson.

Of course, equity release isn't right for everyone, with these forms of lifetime mortgages still being expensive in the long run. Changes to the pensions system could potentially have an impact too – as of next year pensioners will have flexible access to their entire pot, which could mean they won't need to turn to equity release for a lump sum. In the meantime it's important to consider all the options, so use our no obligation equity release service to see if it could be a solution for you.

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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.