Lending to those at or in retirement has exceeded £1bn over the first nine months of this year, which is 34% ahead of last year. The average amount raised has also risen to a new peak of £67,000.
Sales of Lifetime Mortgages and Home Reversion Plans totalled £375.5m during the third quarter of the year, the highest quarterly amount ever achieved. With the value of transactions rising at an annual rate of over 30%, there is increasing evidence that Equity Release has now become an important mainstream part of retirement planning for those aged 55+.
Even though the rate of increase in house prices may be slowing down, the equity tied up in the home remains the most valuable asset for those in retirement. As a result, many elderly people are taking advantage of the flexibility and security built into modern equity release plans to supplement their pension income and to pay off secured or unsecured debts. Indeed, the Equity Release Council has commented that nearly half of applicants are using equity release to meet everyday costs.
Furthermore, most retirees do not plan to relocate to the seaside or overseas. The Office of National Statistics has published a report which suggests that only 3.6% of those aged over 65 have changed their address in the previous year, and 57% of these have stayed in the same local authority area. Equity release is an excellent method of financing home improvements to make a property more suitable for retirement living, and hence remove a justification for a house move upon retirement.
The average sum released now stands at over £67,000, which is up from £57,000 in 2013. Higher house prices are one reason for the rise, but a higher proportion of people are opting to withdraw a full lump sum rather than enter into a drawdown arrangement. Lump sum options now account for 40% of transactions, up from 34% a year ago. The drawdown option is commonly preferred by those who do not need to have all the funds at the outset because interest only accrues as and when the money is withdrawn.
If you are considering whether to join the many people who have already entered into equity release plans, it is best to talk to an independent firm of specialist advisers like Bower who can explain the advantages and disadvantages of each type of plan, and help you to select a Lifetime Mortgage or Home Reversion plan which meets your personal needs.
Equity Release Council quarterly figures
Office of National Statistics: Internal and International Migration of Older Residents
(aged 65 and over) in England and Wales. Published Sept 2014