Why do people release equity from their homes?

More people are using the proceeds of equity release to fund holidays and home improvements

Senior Couple Sitting On Garden Bench In Evening Sunlight

Paying off debts remains the top use for property wealth unlocked by equity release, with gifting money to family and friends also proving popular.

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Latest figures from the Equity Release Council, the trade body for the equity release sector, show that over-55 homeowners unlocked a total of £1.15bn of property wealth via equity release between July and September this year, up 19% compared to the same period in 2020. Equity release lending is projected to exceed £4bn in 2021.

Around two-thirds of the value of equity released in the three months to September was spent on mortgage repayments and clearing other debts, along with providing financial support to loved ones, according to equity release adviser Key’s latest quarterly market monitor.

A spokesman for Key said: “Typically during times of social and economic uncertainty, equity release is used to meet pressing needs such as debt repayment or supporting wider families via gifting rather than discretionary spending on holidays or home improvements. While the pandemic certainly qualifies as a period of uncertainty, other factors such as the Stamp Duty Holiday, low interest rates and lockdowns have also impacted on customers’ choices.”

However, now that the economy is opening up, more people are using the proceeds of equity release to fund holidays and home improvements, with Key reporting an increase from 2% to 9% in spending on home improvements in the three months to September compared to the same period last year, and an increase from 1% to 2% in spending on holidays.

The importance of advice
A recent intergenerational report published by the Council and supported by equity release providers Age Partnership, Aviva, Canada Life, Equilaw, Just Group, Key, Legal & General and Scottish Widows Bank, found that two in five homeowners (40%) believe it is becoming more acceptable to have a mortgage in later life.

David Burrowes said: ““Perceptions of debt in later life are changing, and property wealth is transitioning from having been the ‘emergency fund’ to an enabler of life ambitions and financial goals.”

However, it’s vital for anyone considering unlocking property wealth to ensure they are fully aware of all the pros and cons before proceeding, as equity release can affect your entitlement to mean-tested benefits and reduce the value of any inheritance you might have planned to leave.

All companies offering equity release products are legally obliged to provide you with advice, but you might decide you also want to get impartial advice on your options from an independent financial adviser.

Alice Watson, spokesman for Canada Life, said: “The diverse nature of equity release products mean that they can be used to meet a range of evolving needs. Whilst releasing equity from a property remains a very significant and individual decision it has a valuable role to play in helping today’s homeowners live the retirement they’ve worked long and hard for. With the right advice, equity release has proven it can help people to access their property wealth flexibly and safely.”

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