25th Sep 2018
Later life borrowing
By Ashley Shepherd
The Equity Release Council Autumn 2018 Market Report is out and makes very interesting reading on the way we view property and the part it is starting to play in our retirement and later life planning.
As a nation, we have for many years viewed property as one of the safest ways to save for retirement and now thanks to a much safer, tightly regulated equity release market, property wealth is fast becoming seen as mainstream for funding older age.
Equity release or a lifetime mortgage lets you unlock the equity tied up in your home, giving you a tax free lump sum – frequently used for home improvements, to settle loans, help family get on the property ladder or to assist in funding retirement.
Available to home owners aged 55 and over, a lifetime mortgage can either provide you with a one off lump sum, which can be as much as 50% of the equity of your house, or you can choose the ‘draw down’ option which lets you release funds over a period of time.
What is the demand for releasing equity from your home?
The Equity Release Council’s report highlights a much greater demand for lifetime mortgages in the last couple of years; in fact the number of new plans arranged in the first half (H1) of 2018 exceeds the whole of the market back in 2014, representing an 81% increase since 2016.
What’s more, looking to the future, demand for equity release schemes looks set to grow and grow. It’s predicted that in 50 years, time there will be 9 million more people over 60, which means the requirement for later life lending will only get bigger.
How much money is being released from property?
It would appear from the Equity Release Council Autumn 2018 Market Report that these schemes appeal to households with above average property wealth (the average UK property currently being £228,384) that have found themselves cash poor in later life.
In fact the average house value for draw down mortgage customers in H1 2018 was £353,383, with £312,302 opting to release equity in one lump sum.
Interestingly though, the ‘lump sum’ customers are still borrowing much less than the 50% maximum allowed and the average loan has actually dropped slightly from the second half of last year, currently standing at 30.8% of the property value.
On the flip side, over all lending for drawdown customers has increased however customers still continued to take less than 18.2% of their total housing wealth as their initial advance.
Lump sum versus drawdown lifetime mortgages
During the first half of this year, 38,912 households released equity from their home; 21,490 of which were new customers – a figure that has increased by 28% compared to this time last year and 15,709 were returners, looking to draw down funds from an existing scheme (also up by 25% on H1 2017).
Of those new lifetime mortgage customers, 65% opted for the drawn down lifetime mortgage compared to 35% preferring a lump sum payment.
When looking at the divide of draw down mortgages vs. lump sum by age, the trends are quite different with drawdown plans appealing to the older borrowers whilst younger borrowers opted for a lump sum.
Having said that, overall the average age of new customers during H1 2018 is very similar; 70 for drawdown plans and 68 for lump sum.
Looking to the future
One of the key aspects driving the appetite and demand for equity release is innovation There are now 139 product options for those looking to release money for their home; a figure that has doubled in the last 2 years.
Providing home owners with greater flexibility, these days you can choose lifetime mortgages that:
- Let you make adhoc, penalty free voluntary or partial loan repayments
- Offer fixed early repayment charges
- Include downsizing protection that allows you to downsize to a smaller property and repay the loan without early repayment charges
- Come with inheritance protection that lets you ring fence a section of the property wealth for family
And because there is so much competition, equity release interest rates have dropped too.
So looking to the future, the prospects for the equity release market look very rosy indeed. It’s hardly surprising that with our home typically being our greatest asset, more of us are turning to the equity as a way of making our retirement years financially that little bit easier, or helping family ‘get on in life’ with a ‘living inheritance’.
If you are considering releasing equity from your home why not try the calculator to see how much you could release from your home.
How much could you release?
Use our simple calculator