Record £1 billion in equity released last quarter

The continuing rapid growth of the UK equity release market has been demonstrated by a record £1 billion being released for homeowners in the last the last quarter.

The Equity Release Council lending figures just released show that between July and September equity was being released at the equivalent of £11 million a day.

Record

The figure was a 24% increase on the same period last year and involved a record 12,06 new equity release plans in just 12 weeks.

Still a relatively new concept in Britain, the popularity of equity release has been growing strongly to meet customer demand with the number of products available having trebled in the last two years.

Signpost

In September the government agreed to signpost equity release to older homeowners as a way of handling their finances.

David Burrowes of the Equity Release Council said: “The Council has long championed the view that the option to unlock some of their housing wealth should be on every older homeowner’s checklist to consider, and the wide range of equity release products today can suit a similarly wide range of personal needs.”

The advice will be offered by the new single financial guidance body which has been formed by a merger of The Money Advice Service, the Pension Advisory Service and Pension Wise.

Retiring with debt

Expert Colette Dunn said: “The number of households retiring with debt is increasing. One in eight people planning to retire this year have no pension savings. There is also the ‘ticking time bomb’ of interest-only mortgages, which are forecast by the FCA to reach ‘peak maturity’ in 2018.

“As a result, there is likely to be an increasing demand for alternative sources of income, such as equity release. There is a significant prevalence of home ownership in retirement in the UK, and, according to recent research by Just Group, even those retirees on the lowest income (average of £7,619 a year) have home ownership levels of 89 per cent.”

What is equity release?

Equity release refers to a group of financial products which allows homeowners over the age of 55 to access some of the equity cash tied up in their homes.

It can be accessed as a lump sum, by drawdown of smaller amounts or a combination of both.

Two options

There are basically two options:

  1. A lifetime mortgage allows the homeowner to take out a mortgage on their home without the need to make any repayments until they die. This is the most popular of the two options.
  2. Home reversion allows the owner to sell all or part of their home to a provider in return for a lump sum or regular payments. The owner has the right to continue living in the home rent free until they die. At the end of the plan the property is sold and the proceeds shared according to the remaining portions of ownership.

Further information is available from https://www.moneyadviceservice.org.uk/en/articles/equity-release

Important contribution

David Burrowes said equity release is making an increasingly important contribution to ‘the later life landscape’ on an individual, social and economic level.

He said: “Government, regulators and industry must continue to seek ways to help people take a more rounded approach to later life financial planning.

“No one solution suits every individual need, and there is no doubt more people can benefit from considering property wealth alongside pensions, savings and other assets when making financial decisions – both for themselves and for those around them.”

The £1bn milestone showed homeowners were clearly realising the role property wealth can play in later life claimed Steve Ellis, chief executive at Legal & General Home Finance.

He said: “We see a bright future ahead for lifetime mortgages and we remain committed to working with the regulator to grow this market in a safe and sustainable manner with a prudent approach to lending.”

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