Equity release schemes have been around for a while, but it’s probably fair to say that until relatively recently they were a fairly uncommon financial product that few homeowners took advantage of. However, with a record high of over £3 billion worth of equity released in the last quarter of 2017 – an increase from £2.15 billion in 2016 and just £1.6 billion in 2015 – it’s evident that this type of borrowing has now entered the mainstream.
Equity release allows homeowners to free up the cash value of their property by borrowing an amount secured against their home. Various types of equity release schemes are available – including both lump sum borrowing and regular withdrawals – but the common factor is that the borrower is allowed to live in their home until they die or move into permanent care, with the loan and interest accrued repaid from the sale of the property. According to the Equity Release Council, the average sum drawn is now around £75,000.
Why is equity release becoming more popular?
A number of factors are at play in the equity release boom. Economic and financial circumstances mean that many older homeowners are in a position where they need to supplement their retirement income, and for some in that position, freeing up the cash in their home makes a good deal of sense – particularly as the buoyant housing market of the past decade has increased the value of homes.
There has never been a wider range of equity release products on the market, and that competition is also helping to keep interest rates relatively low – the average equity release rate actually fell last year, despite the Bank of England base rate increasing, and rates have been dropping more or less steadily over the past six years.
There are also indications that changing attitudes to inheritance may be playing a part in the rising popularity of equity release. A recent survey by Royal London revealed that only 45% of 65 to 85-year-olds anticipate passing on an inheritance to their children, while 89% of 45 to 64-year-olds said they would prefer to see their parents spending freely in their retirement.
Equity release plans can be a good way to secure either a lump sum or regular income while still being able to live in your home. However, they aren’t right for everyone. Interest rates can be either fixed or variable; if you opt for the latter, then the accruing interest has the potential to add up quite quickly in the event of future interest rate increases. Fortunately, most equity release schemes currently available come with a “no negative equity” guarantee, meaning that no matter how long you live, the amount owed will never be more than the actual value of the property.
If you are over 55 and are considering freeing up some of the cash tied up in your home, give Premier Equity Release a call today. We can provide impartial, unbiased advice on the full range of equity release products from lenders across the market, including both mainstream banks and smaller, more specialist providers.