With the increase in property prices, people living longer lives, retirees with inadequate pension provision and families needing help getting on ‘the property ladder’, it’s no surprise to hear that Equity Release Schemes have increased in popularity. But with latest news reporting that a staggering £9.5 million of equity is currently being released across the UK per day, it appears that a much higher percentage of pensioners are looking to fund their retirement ‘on the house’.
In addition to these latest daily equity release mortgage figures, ‘Key Retirement’ goes on to report that for the first 6 months of 2018, a total of £1.7 billion of equity was released from UK homes; a figure that is 29% greater than the first 6 months of 2017 and higher than the total amount released throughout the whole of 2015.
Where are the equity release UK hotspots?
It’s fair to say that this huge increase in the demand for equity release mortgages or lifetime mortgages as they are also known is nationwide, however there are certain pockets of the country, so called ‘equity release UK hotspots’ where demand for borrowing against your home is higher.
For example whilst average nationwide equity release loans are for £78,000 per plan, the South East which accounts for more than a quarter of equity release sales currently has an average of nearly £90,000; with home owners in London releasing around £133,000 from their property.
Other lifetime mortgage hotspots include the South West, however all regions have experienced huge increases in the number of households wanting to put the money tied up in their homes to good use. For example East Anglia, West Midlands and the North East also saw an increase in the amount of money being released, with increases of 65%, 62% and 55% respectively.
How are people using their Equity Release Loan?
People choose a lifetime mortgage for a number of reasons. The most popular reason currently is for home and garden improvements, which accounts for 66% of retired homeowners opting for an equity loan.
33% used the money to pay for holidays and approximately 28% used some or all of the money released as a gift for family.
Another popular use for the money drawn down from an equity release scheme is to help fund retirement, with one in five paying off an outstanding mortgage and 32% clearing debts and credit cards.
What is equity release and how does it work?
An equity release scheme is basically a lifetime mortgage that lets you unlock the money that is tied up in your home. The amount of money you can release depends on your age and the amount of equity (the difference between the value of the house and any mortgages or loans you have against it) you have available – an equity release calculator can give you an idea of just how this would be.
The difference with a lifetime mortgage is that there are no monthly repayments to make as the equity loan is only repaid once you died or moved into long term care and your property is sold – so you are free to use the money released from your property without worrying about repaying the loan.
The point to keep in mind is that although you do not make monthly repayments, equity release interest rates are higher, so they will eat into the value of your property and your family’s inheritance. Therefore it is important to seek professional equity release advice from a qualified company or IFA before deciding that all important question – is equity release a good idea for you?
For some, using the hard earned cash from property makes perfect sense and an important part of financial planning for later life – for others, it may be more beneficial to downsize or look at other options available, which again is where an experienced lifetime mortgage specialist can help.
How much equity can I release?
To qualify for an equity release scheme you need to be at least 55 years of age, living in the UK or Northern Ireland and have property worth at least £60,000.
The maximum equity loan you can have is typically between 20% to 50% but this will depend on your age and the value of your home.
It is worth starting your research by using an equity release calculator that will help you get a feel for how much equity you can release from your home. As always, in addition to using the equity release calculator it is also important to compare loans; so using the services of a company like Age Partnership can help as they compare the whole of the equity release market and have agreed preferential rates with leading mortgage lenders.
They will also spend time talking through your current situation to assess whether equity release is a good idea or not.
Alternatively take a look out our guide to find out more about how equity release works.