Equity release surges in popularity

A surge in homeowners looking to free up cash from their properties propelled the figure for equity release to £1.05bn in the three months to the end of September, driven by high house prices, gifts to family members and uncertainty induced by the coronavirus pandemic.

The value of equity released jumped by nearly one-fifth from £884m in the third quarter of 2020. While the number of loans taken out was slightly down year on year, the average amount of housing wealth freed up was 23% higher, at £101,593 per borrower.

Data published this month by equity release provider Key, suggested many borrowers were taking advantage of recent house price gains to help family members climb the housing ladder. “Big-ticket items” such as debt management and gifting were behind nearly two-thirds of the equity released in the third quarter, Key said. More than two-fifths (42%) of the cash given to family and friends was used for house deposits.

For homeowners over the age of 55, equity release offers a way of unlocking the value of their properties, whether for home improvements, paying off other debts or to help family members. Interest on the loan is paid through the sale of the house at the end of the term so, unlike a conventional mortgage, a borrower is not required to demonstrate a minimum level of income to qualify.

Interest rates are higher for these “lifetime mortgages” than for most mainstream mortgages. Key said rates on equity release were still “significantly under those recorded historically” but had crept up from a low of 2.8% in the last quarter of 2020 to 3.16% in the latest three-month period. Those who use equity release at a younger age risk accumulating a much higher interest bill when the moment comes to sell up, so many advisers recommend people hold off for as long as they can before taking out a loan. Key’s research found 49% of borrowers in the latest quarter were aged between 65 and 74.

If you would like advice on releasing equity from your property, please reach out to your financial planner here.

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Sources: Techlink