Equity release is tax free cash released from your home that can be used however you want. Whilst some home owners use the money to fund everyday expenses such as home improvements, cars and holidays, a growing number are releasing equity as part of their financial planning for the future.
So, who is driving this increase in demand for lifetime mortgages and how are they using the money?
Why do people release equity from their home?
People release equity from their home for several reasons. Historically, one of the main reasons people choose equity release was for home improvements but according to Key Retirements 2021 Market Monitor report, things have changed.
The report, which tracks the annual performance of the UK equity release market shows the main reason people released equity in 2021 was to pay off their mortgage. Gifting money came second, possibly attributed to the stamp duty holiday, giving families the chance to get on the housing ladder.
Understandably, the way people use equity release these days has changed slightly as a result of the pandemic. Families appear to be using the money they release from their homes to strengthen and future proof their finances, however the reality is you can use the tax free cash however you choose.
Equity release uses
Here are some of the main reasons people release equity from their homes:
Equity release to fund retirement
Equity release can help retirees boost their retirement income, either by paying off existing debts to reduce outgoings, or by supplementing pension income, making life financially that bit easier. Currently, 75% of homeowners who release equity are over 65 years of age, so close to being, if not already retired.
Using equity release to pay off a mortgage
38% of people who released equity in 2021 did so to pay off an existing mortgage. Paying off your mortgage this way can reduce your monthly outgoings, freeing up much needed cash. There are no monthly repayments to make as the loan and the interest accrued are repaid by the sale of the property, once you have died or moved into long-term care.
Paying off loans with equity release
In addition to repaying an existing mortgage, a further 27% of people in 2021 chose equity release to pay off unsecured loans. Using the money to pay off loans and outstanding debts can reduce your liabilities, providing greater financial security and peace of mind.
Releasing equity to help family
One of the main reasons homeowners use equity release is to help family. Whether it’s to help with education, the cost of a wedding or perhaps to get a foot on the property ladder, using the money you release this way gives you the opportunity to see for yourself how your family benefit from your gift - a so called ‘living inheritance’.
Equity release for home improvements
Using equity release for home and garden improvements is still a popular reason for choosing a lifetime mortgage. In addition to helping fund a new kitchen or extension, you could use equity release to future proof your home. Using the money to make adjustments like a stairlift or walk in shower or paying for help could mean you stay in your home longer.
Remortgaging equity release
Whilst remortgaging is common with residential mortgages, demand has previously been relatively low for equity release. This has all changed with continuation of low interest rates. Throughout 2021, 5,295 existing equity release customers took advantage of the lower rates, an increase of 174% on the previous year.
Although still relatively low, interest rates are starting to increase, which in turn may reduce the number of people searching for better deals. However, this trend throughout 2021 shows the increasing flexibility of this type of mortgage and the options available to the older borrower.
Who can release equity?
Equity release is available to UK homeowners from the age of 55. You don’t have to be mortgage free but you will have to pay off any existing mortgage with the money you release.
Although around 20% of customers are under the age of 65, the average age of an equity release customer in 2021 was 71, with the bulk of borrowers being between the ages of 60 to 80 years of age.
How popular is equity release?
Equity release is growing in popularity year on year, becoming part of older borrowers’ financial plans for the future. In 2021, 41,991 people released equity from their home; a huge increase of 28% compared to 2020.
The average amount people released was £104,792 but the amount of equity you could release will depend on your age and property value.
How flexible is equity release?
As demand for equity release increases, so does the degree of flexibility. These days most schemes allow you to make adhoc payments to reduce the size of the loan and around 64% of plans let you repay interest on an ongoing basis.
Plus, around a third of schemes offer inheritance protection and two thirds provide downsizing protection. This is why it is so important to seek professional advice, to be certain you choose the right scheme for your own personal needs.
For more information about equity release, read our helpful guide.
Or use our equity release calculator to see in seconds how much money you could release from your home.