Equity release surges in 2015
Homeowners borrowed a record £1.61 billion through equity release schemes in 2015, according to the latest figures from the Equity Release Council.
The trade body found that the lifetime mortgage market has doubled in size since 2011, and is now 33% larger than its pre-recession peak. Overall, lending was 16% higher than 2014.
Drawdown products accounted for two-thirds of equity release plans in 2015. These let people borrow against their property in phases, and are typically cheaper than releasing equity in a single lump sum, which is the second most popular type of lifetime mortgage.
Money borrowed through home reversion schemes, where the borrower sells the property or a stake in it but keeps the right to live there rent-free, rose 82% in 2015 compared to 2014. However, this remains a relatively niche area of the market, accounting for 1% of equity release plans.
Equity release plans can be good for homeowners who need to boost their cash in retirement, but it’s an expensive way to borrow because the interest compounds every month. Find out more on how it works in our equity release guide.
‘Growing reliance on housing wealth’
Nigel Waterson, chairman of the Equity Release Council, says: “These year-end figures are the latest sign of growing reliance on housing wealth as a key pillar of later-life financial planning.
“Housing wealth is often people’s greatest asset and it makes sense for equity release to be on every homeowner’s checklist to consider as part of their retirement and estate planning.”
Alex Edmans, spokesperson for Saga, adds: “These latest figures suggest that people like being able to unlock cash from their home as and when they need it. This can be a smart move financially as people only have to pay interest on the funds they release, but they know that they can unlock more cash at a later date if they need to.”
An equity release scheme, where the money borrowed against equity in the property (up to a maximum of 50%) is subject to interest charges and although the borrower makes no payments during their lifetime, the monthly interest repayments will roll up and be added to the original debt, which will be settled on the borrower’s death. A lifetime mortgage is distinct from a home reversion scheme in that the lender never owns part of the property. But most lifetime mortgages are sold with a no negative equity guarantee. This means that if the loan is greater than the property’s value it’s a problem for the original lender and not the homeowner.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.