Equity release hits record levels
The number of older people releasing equity from their homes has hit an all-time high.
Equity release lending to UK homeowners over the age of 55 totalled £384.3 million over the last three months, the highest since records began.
Figures from the Equity Release Council also revealed that the value of housing wealth released over that period jumped 18% both on the previous quarter and last year’s Q2 total of £325.6 million.
This means that homeowners over the age of 55 effectively withdrew £4.2 million of housing wealth every day between April and June.
Despite the pension freedoms introduced in April, equity release is enjoying great popularity as a way of providing a form of income in later life. Property wealth has become a central part of retirement planning, partly down to a lack of pension provision and the Mortgage Market Review stopping older people from getting approved for traditional mortgages.
Record lending in the second quarter meant that the total value of equity released in the first six months of 2015 hit £710 million, the largest ever for the first half of a year and an 11% increase on the first half of 2014.
What is equity release?
Equity release allows you to ‘release’ some of the value of your home to give you an income, but you get to stay in your home until you die or go into long-term care.
The company you borrow from will either claim your home when you die, or you will have to repay any money owed if you sell your house and go into care.
There are two main types of equity release plan: a lifetime mortgage and a home reversion.
A lifetime mortgage is a loan secured on your home which is either paid monthly or as a lump sum. As you’re paying interest on the amount you’re borrowing, it could end up backfiring if you live for a long time, thanks to compound interest.
Home reversion allows you to sell all or part of your home to a company and it’ll lease it back to you so you can carry on living there. When the house is sold, the company will receive the agreed amount. Any remaining funds will go to the estate.
Find out more at Equity release pros and cons.
Drawdown lifetime mortgages are most popular
Lifetime mortgages come in two distinct forms - lump sum, where you get the cash in one go, and drawdown, where you get the money in stages.
The value of lending via lump sum lifetime mortgages increased by 10% year-on-year in the first six months of 2015 to reach £285.3 million. It’s the highest lump sum activity in the first half of any year since 2007 when the value reached £355.9 million.
However, drawdown lifetime mortgages performed even better, rising 12% year-on-year from £379.2 million in the first half of 2014 to £423.5 million in the first half of 2015. It also rose by 21% between Q1 and Q2, which the Equity Release Council put down to borrowers prefering the flexibility to withdraw funds in regular instalments rather than a lump sum.
Home reversion is much less popular, accounting for less than 1% of the equity release market. That said, they did see an 18% increase in lending from £534,765 in Q1 2015 to £632,647 in Q2.
Nigel Waterson, chairman of the Equity Release Council, said: “Doom and gloom often surrounds discussions on retirement income, but while contributions to pension pots remain low, an entire generation of homeowners have been paying into property their whole lives: making it an asset that can transform their financial options beyond the age of 55. Anyone seeking advice on how to plan their retirement should consider their property as a valuable source of wealth."
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