What rising property prices mean for equity release

Rising house prices make equity release more attractive to homeowners

Retired Caucasian couple in their 60s sitting on arbor bench in backyard enjoying morning coffee and conversation.

House prices are rising at a near record pace, boosting the amount of equity homeowners have in their homes and prompting some to consider unlocking some of their growing property wealth.

Advertisement

Although house price growth cooled slightly in April, according to the latest House Price Index from the Office for National Statistics, prices were still up by 8.9% in the year to April 2021. The average UK house price reached £251,000 in April 2021, £20,000 higher than in April 2020.

A spokesman for financial website Moneyfacts.co.uk said: “Rising house prices make equity release more attractive to homeowners as it means that they can release more money from their home.”

According to the Equity Release Council, the trade body for the equity release sector, the first three months of 2021 saw £1.14bn released by 16,527 new or returning customers, a 7% rise year-on-year from £1.06bn in the first three months of last year. Nearly three in five (58%) new customers opted for drawdown lifetime mortgages, and 42% opted for lump sum lifetime mortgages. With a drawdown lifetime mortgage, homeowners can unlock property wealth as and when they need to, which can help keep interest charges down. Some equity release plans also enable homeowners to repay some of what they owe during their lifetime, which again can reduce the amount of interest that must be repaid when their property is sold.

David Burrowes, Chairman of the Equity Release Council, said: “The resilience of house prices means that, for many older homeowners, property continues to be the most significant asset at their disposal and a viable route to boosting their income from pensions and savings, or gifting a ‘living inheritance’ to family members for their own use such as for a house deposit.”

Remember the risks

It’s vital to remember that equity release won’t be right for everyone, as it could affect your eligibility for means-tested benefits, as well as reducing the value of any inheritance you might have planned to leave when you die.

Bear in mind too that although house prices might be rising now, there are no guarantees they will continue to do so. If they do fall sharply in years to come and you’ve released equity from your home, there’s a chance that there will be very little left when your property is sold after you die or move into long term care and what you owe is repaid. However, you shouldn’t ever end up in a position where you owe more than your property is worth, as provided you choose a plan from a provider who is a member of the Equity Release Council, it will come with a ‘no negative equity’ guarantee. This means your estate won’t ever owe more than the property is worth when it is sold.

If you are considering equity release, always seek professional financial advice first so that you can weigh up all the pros and cons and decide if it’s right for you.

Advertisement