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Equity release gives retirees £8m per day

Pensioners accessed £3bn in housing wealth in 2017 - but is equity release right for you?

Equity release gives retirees £8m per day

Retired homeowners accessed more than £3bn of their property wealth in 2017, with home and garden improvements cited as the main reason for releasing equity.

According to new data from Key Retirement, the equity-release market saw record growth in 2017, with lending up by 40% year-on-year.

Here, we take a look at how much equity people are releasing from their homes and for what purpose, and explain the pros and cons of equity release.

 


Where are people releasing equity?

With high long-term property growth, it might not be a surprise that the south-east of England (£953m) and London (£557m) saw the highest equity-release figures in 2017.

Elsewhere, Northern Ireland (£15m) and the north-east of England (£56m) had the lowest figures, though both of these still represented significant year-on-year growth.

The map below shows the total equity released by homeowners in each of the UK’s major regions.

Equity release: why people do it

Retired homeowners cited home and/or garden improvements and going on holidays as their two main reasons for accessing equity from their properties in 2017.

Paying off debts and clearing mortgages were also frequently cited, possibly due to reduced incomes and the fact that it can be tricky to remortgage into retirement.

Interestingly, a quarter (24%) of those accessing property wealth said they were treating or helping family or friends – perhaps an indication that the bank of Grandma and Grandpa is being called upon as millennials struggle to get on to the housing ladder.

How much value do homeowners release?

While the average cash released varies significantly around the country, loan-to-value levels remain similar in all regions, ranging from 22% in the south-east to 29% in the north-east.

What is equity release?

Equity release schemes allow retired homeowners to access some of their property’s value without having to move out.

Common schemes include lifetime mortgages and home-reversion schemes, but both can be expensive.

Lifetime mortgages involve borrowing a proportion of your property’s value, to be paid back when you die or sell your home. Interest is charged on this amount, with your bill escalating over time.

Home-reversion schemes, meanwhile, involve selling a share of your property to a provider for below-market value. Then, when you die or move into long-term care and your home is sold, the provider gets their share back as a percentage of the sale price.


Is equity release right for you?

Equity release might sound appealing at face value, but it’s a lifelong commitment and it’s not something to jump into.

Based on a £250,000 property, the chart below shows how a debt of £75,000 can increase over time under a lifetime mortgage at a fixed interest rate of 5.5%.

It also offers an example of a home-reversion scheme based on releasing £75,000 by relinquishing 70% of the property’s value.

Before going ahead with equity release you should weigh up your other options, including unsecured loans (if you require a small amount), mortgage extensions (if you still have an outstanding loan), downsizing, and accessing any other benefits you might be entitled to.

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