Rise in homeowners borrowing through equity release

There was a 41% increase in the number of people taking out equity release between July and September compared to the previous three months, a report released by the Equity Release Council has revealed.

According to the report, between July and September (Q3 2020), 10,351 new equity release plans were agreed, which is up from 7,341 agreed between April and June (Q2 2020), but 9% lower than the same period the previous year when 11,419 equity release plans were agreed.

In addition to the increase in new equity release agreements, Q3 2020 also saw an increase in customers taking extra drawdowns from their agreed plans compared to Q2 2020. The report found that during Q3 2020, 6,697 customers took equity release drawdown, which is a 19% increase compared to Q2 2020, when 5,608 customers took drawdown. However, again, Q3 2020 saw a year-on-year decrease, with 9,605 customers taking equity release drawdown during Q3 2019.

One reason for the increase in equity release activity during Q3 2020 compared to Q2 2020 is the impact the spring lockdown had on the market. During the lockdown, many potential customers were unable to get equity release due to property valuations being unable to take place. David Burrowes, chairman of the Equity Release Council, said: “These figures show a steady return to something closer to normal activity over the summer, after the market weathered the initial impact of Covid-19. With the country experiencing a break from lockdown, the pick-up was helped by a mix of new enquiries and delayed cases from earlier in the year.”

Equity release can be a good way for older homeowners to release some of the equity in their homes, but it can also have long-term financial implications for borrowers.

Traditionally, equity release allows homeowners to borrow money using the equity in their home without having to repay the debt until they move into a permanent care home or after their death. But interest accumulates on the debt, which can result in borrowers leaving behind significantly less inheritance to their family and friends. Saying this, in recent years the equity release market has evolved to include a wide range of equity release options, some of which enable borrowers to make interest repayments during their lifetime.

In addition to this, many equity release customers are choosing to take a drawdown option, which allows them to take multiple lump sums from their plan at different times. This option can help to reduce the interest on the debt as only interest is charged on the money that has been taken through the drawdown.

Due to the long-term impact equity release can have on finances, consumers should consider speaking to an independent financial adviser before agreeing to an equity release deal. In addition to this, borrowers can also consider speaking to an equity release broker who will be able to provide advice on the best deal available for their individual circumstances.