With equity release sales continuing to soar, we investigate why homeowners are tapping into their property wealth and what has led to the sudden surge in the popularity of equity release.
The equity release market is booming and records are being broken in all directions. At £898m, the value of housing wealth released in the second half of 2015 was the largest of any half year, and the first quarter of 2016 went on to see more sales than any other three months on record. Over £1.61billion was unlocked by equity release customers in 2015.
So why are so many people tapping into their property wealth? Latest figures released by retirement lending specialist, Bower, show the top ten reasons given by customers who unlocked cash from their homes in the first half of 2016:
Top 10 reasons our customers use equity release
- Home improvements (38.6%)
- Pay off mortgage (33.9%)
- Live retirement as planned (29.8%)
- Pay off debts (26.6%)
- Help family (15.9%)
- Holiday / car (12.8%)
- Holiday home (0.9%)
- Pay for care (1.9%)
- Cosmetic work (0.7%)
- Divorce (0.3%)
(Primary and secondary reasons given by Bower customers Jan – Jul 2016)
Over 38% of customers will spend all or some of their equity release money on home and garden improvements, putting it top of the list. Major home improvements such as building an extension to add another bedroom or extra living space to the property can cost many thousands of pounds, but can add significant value too.
Few people plan to carry a mortgage into their retirement, but sadly this is the reality for thousands of people in the UK, making clearing mortgages the second most common reason for equity release. By using the tax-free cash locked in their bricks and mortar, homeowners can avoid the prospect of having to downsize from the home they love, or face working well in to later life to pay it off.
Other major reasons include enjoying retirement as they had planned to with a larger disposable income, paying off loans and credit cards, gifting to loved ones, and enjoying holidays and new cars.
Interestingly, cosmetic surgery has made its way into the top ten reasons for homeowners to unlock cash from their homes!
Together with taking holidays and buying holiday homes and new cars, the data demonstrates that equity release is not just a last resort for those experiencing financial issues. It is enabling homeowners to fund luxury, life-changing purchases in later life that may otherwise have been impossible.
Evolvement of equity release
Aside from the personal motivations to access the money tied up in our properties, why has equity release seen such a surge in popularity in recent years?
Whilst nobody can say for sure, what we do know is that equity release has undergone a colossal transformation since the early plans of years gone by.
Increased customer protection, headline grabbing low rates and plan flexibility are central to today’s plans, leading equity release to establish itself as a household name for over-55s seeking responsible lending solutions.
New providers have joined the market in recent months and years, too, bringing with them revolutionary new ideas and incredible low rates. The addition of new names to the market led to existing providers following suit, and before long a new dawn of flexible retirement lending was heralded in.
Interest payment and low rate plans
Today’s flexible plans include variable rate deals, and offer homeowners the ability to make voluntary payments to reduce or prevent interest from accruing on their equity release plan. In some cases, up to 10% of the loan can be paid each year, meaning the plan can be paid off in just ten years if the homeowner wishes.
Interest-only lifetime mortgages are now widely available, too, offering a solution to the thousands of homeowners faced with the daunting prospect of their interest-only mortgage coming to an end with no plan in place to repay the outstanding loan. Perhaps this is why using equity release to clear an existing mortgage is the number one reason for Bower customers to unlock cash from their homes?
House price boom
Of course, a major reason for people turning to equity release in recent years is to take advantage of the booming house price increases, without the need to move house.
Despite the economic downturn which began in 2007, by the second quarter of 2010 the average house price in the UK was still worth on average £109,737 more than in 1990.
Today, the average house in the UK is worth £204,238, a huge £145,256 more than what a person would have purchased their home for in 1990, when the average price was just £58,982.
Speak to a specialist
Remember, equity release will reduce the value of your estate and the amount of the inheritance you leave, so it is vital to speak to an independent specialist in retirement lending before making a decision.
If you are considering equity release then speak to a member of the Bower team today to arrange your FREE, no-obligation home consultation. Call free phone [tel].
