More and more UK householders are using equity release as a means of raising much-needed funds, according to the latest figures from the Equity Release Council in 2017.
From July to September this year alone, a total of £824m was released via equity release – the most ever recorded in a single yearly quarter. Since the beginning of the 2017, the figure is an astonishing £2bn of equity released by homeowners over the age of 55.
Financial experts say the use of the equity release schemes has reached an all-time high, for various reasons which can be explained as follows.
One of the main reasons is that older homeowners are finding they require extra funds to finance their lifestyle during retirement. As people are living longer in these days of effective medicine and healthier lifestyles, they may have 30 years or more of living without a wage coming into the home.
Average life expectancy is growing still and its not only equity release this has affected. We have seen the state pension qualification age increase. Whereas it was the norm for a woman to retire at 60 & men at 65, these rules have been addressed due to longevity. Now anyone born after 6th March 1961, which makes them of equity release qualifying age, wouldn’t receive their state pension until age 67!
Some people are using the equity release schemes to help pay off maturing interest-only mortgages, which they have no other means of financing.
Following lax regulations around endowment mortgages in the 1980’s and self-certification mortgages of the 90’s and noughties, there is a swathe of interest-only mortgages with either a repayment vehicle that is falling short of its target maturity value, or one that isn’t even present at all!
There is no room for sentiment from lenders for these unfortunate interest-only prisoners, other than finding alternative sources of retirement lending, of which equity release is proving to be a viable alternative. With interest-only lifetime mortgages and voluntary payment plans available in the equity release arena, many interest-only prisoners are finding these plans match their risk profile. Requiring no proof of income or affordability, the choice of whether to continue managing the interest only payments is upto the borrower, not the lender.
Other retirees are choosing to release equity in order to help members of their family, such as assisting grown-up children in times of need, or helping their grandchildren through university or repayment of debts that have accrued.
Inter-generational gifting has become more mainstream using a release of equity. We have heard consumers say many time to our advisers that they are in need of their inheritance now, when they are buying a home or bringing up the children, rather than when they are retired & all these expenses have disappeared after struggling on through.
Yet more are simply using the extra cash to make home improvements, buy a new car or even go on the holiday of a lifetime. Equity release can help homeowners do all of these things and more – how you use the cash is totally up to you.
Most people who release equity from their home with Equity Release Supermarket sign up for sums for an average release of over £83,000 in 2017. This figure has been rising as we are seeing more interest-only mortgagors approach us looking for solutions to clearing their residential mortgage as the likes of Santander, Barclays and alike are demanding repayment & in most cases not offering fresh terms.
When these homeowners first understand how equity release works they realise that it isn’t too dissimilar to the mortgage they held with their bank or building society. In fact many of our clients feel that with the flexible features built into equity release schemes in 2017 they are more suited to entering retirement with all the variables that could throw up in the future.
Both equity release lifetime mortgage and residential mortgage companies place a first legal charge on the property in order to secure their lending. The reason for this is to ensure they receive payment when the house is eventually sold. Equity release however actually provides more security for the homeowner as the borrower is able to continue to live in the house, usually until death, or going into long-term care. They have the option to choose whether or not to make monthly payments and therefore cannot be repossessed for none payment, like a residential mortgage lender would.
Although such loans are becoming more popular, experts say they are not suitable for everyone and all the alternative solutions should be discussed – so it is important to get reliable financial advice before going ahead and discussing with your family.