One in four pensioners are now using equity release to help family, new research has revealed. This generous equity release gifting is not only helping younger generations, but also driving record growth in the equity release market at the moment.
The findings, from Key Retirement's Q1 2018 Equity Release Market Monitor, show that around 30 retired homeowners per day gifted some or all their released equity in the first three months of the year. This financial help was used for a variety of reasons, including house deposits, university/school fees, debt repayment, holidays and even to start a business.
The proportion of over-55s who are releasing equity from their home in order to gift it increased from 22% to 26% during the quarter, with more than 2,700 choosing to offer support. This desire to support family has helped drive growth in the market overall, with homeowners gaining an average of £74,047 through equity release, a figure that rises to £128,400 among Londoners. The total value of wealth released in the quarter stood at £777 million as a result, up 23% year-on-year, with a 22% increase in plan sales (to 10,495), both of which are record highs for the first three months of a year.
"Gifting is a major motivation for equity release and our data shows it is more a case of parents and grandparents wanting to gift rather than children asking for help," said Dean Mirfin, chief product officer at Key Retirement. "They're motivated by the desire to help when the money is really needed and being around to see the difference that it makes."
Despite the increased popularity of giving, the most popular reason for releasing cash was to fund home and garden improvements, with 63% of retired homeowners using the money for renovations. A further 31% of homeowners also used some money for holidays, while 21% used released funds to pay off their existing mortgage debt and 30% used it to clear credit card and loan debt.
In line with renovations – which tend to require several payments over time – being the most popular reason, 68% of all equity release sales were for drawdown plans. Drawdown enables people to get their money in stages, with interest only amassing on the money that has already been withdrawn. This generally means that homeowners accumulate less debt compared to taking out a lump sum, with those 16% who got an enhanced drawdown plan due to health or lifestyle conditions able to get an even better deal.
"[Homeowners are also] helped by a very competitive market place, with rates fixed for life at their lowest ever levels as increased competition and new lenders mean rates on plans are lower than many mainstream lenders' variable rates," added Dean.
To find out if equity release is for you, you could have a look at our guide or talk to an adviser directly. More information can also be found on our equity release page. Make sure to discuss it with your family as well, however, as equity release will affect the inheritance you are able to leave behind.
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