Equity Release – Why It’s Proving Popular

Posted on: 29th Jul 2015

With rising property prices seldom out of the media, many older people have found themselves considering the amount of money they have locked up in their own homes. Figures from the Office for National Statistics show that people aged over 50 own £2.5 trillion of the UK’s household property wealth, that’s 66.2% of the country’s overall property wealth.

Increasing in Popularity

Figures from the Equity Release Council (ERC) show that annual equity release lending reached the highest total on record (£1.38 billion) in 2014, a 29% rise from £1.07 billion in 2013 and 14% up on the £1.21 billion recorded in 2007.

Equity release has proved increasingly popular for several reasons. Many pension pots fall short of what’s needed to sustain a comfortable later life and, as life expectancy rises, property wealth is emerging as an accessible source of funding for those aged 55 and over. In addition, the Mortgage Market Review means that homeowners find it increasingly difficult to obtain residential mortgages beyond 55, while many with interest-only mortgage loans are approaching the point of repayment with limited means of doing so.

Pension Comparison

The ERC Market’s Report (Spring 2015) showed that although drawdown customers release just a sixth of their housing wealth initially, this amount (£46,356) is 85% larger than the typical defined contribution pension pot. Lump sum customers are releasing just over 28% of their housing wealth (£69,118) a sum that is 175% bigger than the average
pension pot.

Their figures show the rising popularity of drawdown equity release, which allows homeowners to take a lump sum secured against their property wealth and leave some in reserve they can access at a later date.

Many people are using equity release to enjoy a comfortable retirement, pay down debts, boost their income or plan capital expenditure.

Professional advice is essential; equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should involve your children and dependants from the outset.

It is important to take professional advice before making any decision relating to your personal finances. Information within this blog is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.

Think Carefully

Think carefully before securing other debts against your home. To understand the features and risks of Equity Release, ask for a personalised illustration. Your home may be repossessed if you do not keep up repayments on your mortgage. A fee may apply for equity release advice and, if applicable, you must ask your adviser for details before making any decision relating to equity release as the actual amount will depend on your personal circumstances, but the typical amount is 1% of the loan value (on a typical £100,000 mortgage, this would be £1,000).