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Equity release hits record high – should you consider it?

£1.02bn unlocked through equity release in last quarter alone

Homeowners used equity release to unlock a record-breaking £1.02bn from their properties last quarter, according to the Equity Release Council. But not all types of deal are equally in demand.

New data shows the value of equity release jumped by 25% between the third quarter of 2017 and the same period in 2018. Over the same timeframe, the number of new deals signed increased by 6%, up to 12,016.

But while equity release is becoming increasingly popular, it’s not right for everyone. Before releasing cash from your home, it’s important to understand the pros and cons, and how different types of equity release work.

Here, we look at the trends in the equity release sector and explain how it works.

  • Retirement interest-only (RIO) mortgages and remortgaging are both popular alternatives to equity release. For a free, expert consultation to discuss whether one of these options could suit you, call Which? Mortgage Advisers on 0800 197 8461. Unfortunately the team are unable to advise on equity release schemes.

Lump-sum versus drawdown equity release

Equity release is becoming an increasingly popular option, with 12,016 new plans agreed between July and September.

By far the most common type of equity release is a lifetime mortgage. Under these schemes, you take out a loan on your property which is repayable when you sell the home or die.

When you take out a lifetime mortgage, you can opt to borrow a lump sum – a choice 37% of equity release customers opted for in the last quarter. The interest is generally rolled up into your loan, so that you don’t have to make repayments but the amount you owe gets larger over time.

A more popular option – taken by 63% of borrowers – is a drawdown lifetime mortgage. Under these deals, you take a smaller amount at the outset, then have the choice of drawing down further loans if you need them. The interest is rolled up, but you only pay it on the amount you borrow.

Home reversion schemes, where you sell a share in your home but retain the right to live in it, were selected by just 1% of equity release borrowers.

How much are people borrowing?

While the total value of equity release borrowing has increased, homeowners aren’t necessarily borrowing more from their properties.

In the case of lifetime lump-sum plans, people withdrew an average of £91,398 at the outset of their deals in Q3 2018. This is 9% lower than the year before.

People in drawdown plans tend to withdraw a smaller amount at the outset of their equity release plan – a still-substantial £65,343 – and the average drawdown for those making subsequent withdrawals is £11,443. In both cases, these averages have not significantly changed in the past year.

Average advance for lump sum lifetime mortgage Average first instalment for a drawdown lifetime mortgage Average drawdown by returning customers
 July-September 2018 £91,398 £65,343 £11,443
July-September 2017 £100,389 £64,792 £11,236
Annual change -9% 1% 2%

Is equity release right for you?

Your home is often your most valuable asset, so turning some of this equity into cash can be an appealing option.

But there are drawbacks to consider before you go down this route. First of all, if you’re hoping to leave your property as an inheritance to your heirs, equity release can drain much of its value. While most deals are structured so that you’ll never owe more than your home is worth, there may be a limited amount left for the next generation.

You may also have to pay an early-repayment charge if you want to exit the deal or pay the loan off early, unless you die or move into care. Loans arranged by providers that are part of the Equity Release Council are ‘portable’, so that you should be able to move them to a new property, but this could be difficult if one home is worth more than the other.

What are the alternatives to equity release?

There are a number of alternatives to equity release. You could seek an unsecured personal loan, downsize to a smaller, less expensive home, or release cash by remortgaging.

There’s also recently been an increase in products termed ‘retirement interest-only‘ (RIO) mortgages. Sitting somewhere on the spectrum between traditional interest-only mortgages and equity release, RIO mortgages allow you to pay monthly interest for an indefinite term – usually until you sell the house, move into long-term care or die.


Seek professional advice

If you want to pursue the equity release option, it’s worth talking to an independent financial adviser or calling the Which? Money Helpline.

If you’d like a free chat with Which? Mortgage Advisers about whether a RIO mortgage or standard remortgage deal could be right for you, plus an expert recommendation on the best option for your circumstances, fill out the form below to request a call-back. Alternatively, you can call 0800 197 8461.

Unfortunately Which? Mortgage Advisers are unable to advise on equity release schemes.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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