Equity release – An increasingly popular way to repay mortgages

By Carrie Ann on

House prices have seen their ups and downs over the last 30 years, but the ups have far, far out-weighed the downs.

In fact, there have only been 2 significant dips in house prices over this period, according to Nationwide (1). If you are of a certain age, you’ll remember house prices falling as a result of the recession in the early 1990s – when prices fell consistently between 1990 and 1994.

In more recent times, the second dip followed the international banking crisis and recession of 2008-2009.

If we look at the average price of new houses at the end of 1988 and again at the end of the first quarter of 2018, then it’s easy to see why for most people, their homes are the best investment they have ever made.

Believe it or not, the average price for a new house at the end of 1988 was just £71,021 and at the end of March this year was £233,116 – a 328% increase.

This story has an even happier ending for older homeowners. As recently as 2016 (2), it was estimated that the over 55s held over £1.5 trillion in the value of their homes, which at the time was more than the entire GDP of Italy!

So, no wonder then that more and more older homeowners are tapping into the value of their homes through equity release.

According to the Equity Release Council -the trade body of the Equity Release industry – 2017 was a record year for equity release attracting five times as many customers as it did just five years ago (3).

The average a customer releases is over £80,000 (4) and they put this tax-free money to a wide range of good uses – from making their homes retirement ready, to paying off debts to helping-out their friends and family with a ‘living legacy’.

While our homes are likely to be our most successful investments, our mortgage repayment is also amongst our biggest expenditures, at over £143 a week (5).

Unsurprisingly, to finally repay the mortgage is both a cause for celebration and financial relief and equity release is enabling more and more older homeowners to enjoy that mortgage-free feeling: over 20% (6) of equity release customers are now using some of their money to repay theirs.

The trend in house prices over the last 30 years is showing no signs of coming to an end. House prices (and so in turn the equity in our property) will only continue to rise due to a shortage of housing stock and land to build on. The meteoric rise in the popularity (3) of equity release is surely set to follow suit.

 

1 https://www.nationwide.co.uk/-/media/…/house-price…/uk-house-price-since-1952.xls
2 http://www.thisismoney.co.uk/money/news/article-3829791/Over-55-UK-homeowners-wealth-locked-away-homes-entire-annual-GDP-Italy.html
3 Equity Release Council, Spring 2018 Market Report
4 http://www.financialreporter.co.uk/retirement/average-equity-release-plan-totals-130000-in-september.html
5 https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/compendium/familyspending/2015/chapter2housingexpenditure
6. Key Retirement Market Monitor, FY 2017.

Categorised in: Equity Release Mortgages
This post was written by Carrie Ann