Jump in borrowing through equity release
Equity release involves homeowners unlocking some of the wealth tied up in their homes
More than 10,350 new equity release plans were agreed between June and September, according to the Equity Release Council, an increase of 41% compared to the previous three months.
The Council, which is the trade body for the equity release sector, said that the pick-up in activity was helped by the easing of lockdown measures in the summer and a mix of new enquiries and delayed cases from earlier in the year. However, despite the sharp quarterly increase, numbers were down 9% year-on-year.
Reason people turn to equity release
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Equity release involves homeowners unlocking some of the wealth tied up in their homes. The amount borrowed, along with the interest owed, must only be repaid once the homeowner dies or moves into long-term care. The Council said that funds released are typically used for a range of purposes including providing additional retirement income. Many people have seen their incomes fall due to the coronavirus pandemic, prompting them to consider equity release as a means of raising funds.
According to data nearly half of all households (42%) aged 55-64 have spending that exceeds their disposable income. This falls to 34% of those aged 65-74 and 36% of those aged 75 and above.
Research conducted by equity release broker Age Partnership found that 86% of those aged 55 and older are worried about the financial impact of coronavirus, whilst 22% are worried about their finances.
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Other reasons people choose to unlock property wealth include funding one-off expenses and lifestyle purchases, consolidating debts, meeting homecare costs and gifting a ‘living inheritance’ to family or friends. Age Partnership said it has seen a steady increase in the number of people releasing equity from their homes to provide a gift to their loved ones. These gifts are often used to fund deposits for houses, something which is particularly pertinent at the minute with the reduction in stamp duty until March 2021.
The importance of advice
Equity release won’t be right for everyone, so it’s essential you seek professional financial advice before you proceed. As you’ll be taking money out of your home, and interest will accumulate on the amount borrowed, you’ll have less to pass on to loved ones when you die. It’s therefore a good idea to discuss your plans with your family too so that they are aware of this.
Remember too, that releasing equity from your home may affect your entitlement to means-tested benefits, so make sure you understand of all the long-term financial implications involved. It’s also important to check any equity release plan you’re considering meets Equity Release Council (ERC) product standards. If it does, then you’ll benefit from a ‘no negative equity’ guarantee, which means when your property is sold, even if the amount left is not enough to repay what you owe, you won’t be liable to pay any more.
David Burrowes, chairman of the Equity Release Council said: “Equity release is a carefully considered choice, and this year’s unprecedented events make it more important than ever for people to weigh up their decisions through regulated financial advice, independent legal advice and conversations with those closest to them.”
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- Radio Times partner - find out how much you could release with this free calculator click here