Older homeowners unlocked £3.6 billion from their properties in 2018 via equity release plans, with more than one in four using the proceeds to help family or friends.
Equity release, as the name suggests, involves releasing some of the equity you own in your home. Rather than repaying what you’ve borrowed gradually, the amount released plus interest which rolls up over time, is only repaid when you die or move into long-term care.
Sales of equity release plans increased by 21% in 2018, according to Key’s annual Market Monitor report for 2018, up from 38,955 to 47,081. New lending increased by 19% last year up from £3.01 billion in 2017 to £3.6 billion in 2018. The average amount released last year was £76,473, down slightly from £77,380 in 2017.
Separate research from the Equity Release Council, the trade body for the equity release sector, found that homeowners released £136 of property wealth each second in the final three months of last year.
The Council said that growth in the popularity of equity release has been fuelled by the wide range of flexible product options now available, such as the option for homeowners to receive a regular monthly income, or to pay interest back each month rather than it rolling up over time.
Reasons people release equity
The most popular use of equity release is to make home or garden improvements, Key’s Market Monitor found, with 64% unlocking some of their property wealth for this reason.
A third (33%) use equity release to go on holiday, whilst 31% use the proceeds to pay off debts, such as loans and credit cards. More than one in four people (27%) released equity to treat family or friends, up from 24% in 2017.
Will Hale, chief executive at Key said: “The growth in gifting highlights the inter-generational benefits of equity release for families with money being used to clear debts, fund university fees and pay for house deposits and weddings. Even the use of equity release to fund home and garden improvements has benefits for families as it helps people to ‘age-proof’ their home and preserve wealth for the family.
““Debt remains however a major issue for some retired people and substantial numbers are relying on equity release to clear credit cards and loans as well as paying off mortgages.”
Seek professional advice
Equity release won’t be right for everyone, so if you’re considering unlocking some of your property wealth, always seek professional financial advice first.
It’s important to remember that releasing equity from your home may affect your entitlement to some state benefits, and it will also reduce the value of any inheritance you plan to leave your loved ones.
Mr Hale said: “Good specialist advice is key to ensuring that older homeowners receive the most benefit from their property wealth and use it in the most appropriate way for them and their families.”