Recent figures from the Equity Release Council – the industry body for the equity release sector – have revealed the unprecedented recent rise in homeowners taking out equity release products to unlock the value tied up in their homes. According to the body, the first quarter of 2018 saw a 25% year-on-year increase compared to 2017, with owners releasing a total of £870 million in equity from their homes during the quarter. This compares with £697 million in the first quarter of 2017 and £394 million in 2016. The average initial drawdown in the first three months of this year was £64,797, representing an 11% increase from £58,466 last year.
With the number of homeowners using equity release doubling in the past five years, it’s clear that this type of financial product is experiencing a new surge of interest. So, why are so many older homeowners now taking advantage of equity release? A major driver is that, due to a variety of economic and financial reasons, a growing number of older homeowners are finding themselves in a position of facing a retirement income shortfall. According to David Burrowes, chairman of the Equity Release Council: “New sources of income in later life are increasingly being sought, and this highlights the need for a rounded approach to retirement planning which considers all wealth, assets and product choices.”
It’s also true that the equity release market has broadened in recent years to offer a wider, more innovative and flexible range of products for homeowners. That greater variety means homeowners have more of a choice than ever and, rather than being forced to decide between a relatively narrow number of options, they now have the ability to shop around and choose an equity release product that more comfortably suits their needs, circumstances and future plans.
A further factor that is almost certainly playing a part in the current surge in equity release is the number of customers with interest-only mortgages approaching the end of their term, but for which the borrower has no repayment vehicle in place to pay off the mortgage debt. Where the alternative may be to either sell the property and downsize or – in a worst-case scenario – face having the property repossessed by the lender, then an equity release product which allows you to pay off your mortgage and remain in your home until you die or move into permanent care can be an attractive proposition.
Changing attitudes to inheritance may also be helping the equity release market. Research conducted by Royal London has revealed that younger generations are less concerned about receiving an inheritance from their parents, with 89% of 45 to 64-year-olds preferring to see their parents spending freely throughout their retirement. Similarly, only 45% of 65 to 85-year-olds surveyed anticipated that they will pass on an inheritance to their children.
The Equity Release Council’s latest report points to a healthy growth in the market and one that, for homeowners, can only represent a wider choice of options to consider in retirement planning. With the range of equity release products available growing 25% year-on-year and, crucially, average interest rates on products falling despite the Bank of England base rate increasing last year, the options look good for any homeowner looking to release the property wealth tied up in their home.