Written By Em

A record level of property wealth was released by homeowners aged 55 and over last year, with £1.61 billion unlocked through specialist equity release plans.

The Equity Release Council (ERC) reports that lending grew by 16% on the previous year, as homeowners used lifetime mortgages and reversion plans to withdraw cash from their homes.

Over 22,500 deals were agreed for 2015 – the highest figure since 2008. The value of borrowing also exceeds its pre-recession high by a third.

Equity Release Levels at Record High Among Over-55s

Lifetime mortgages, which allow borrowers to take out a loan against a property and only pay interest on its sale, were the most popular form of borrowing. Meanwhile, reversion plans, which allow homeowners to sell part of their property but continue living there, accounting for less than 1% of deals agreed.

The data shows that for many retirees, property is their biggest asset. Additionally, as house prices have continued rising, they have built up considerable equity. The ERC reports that customers borrowed an average of £70,670.

The Chairman of the ERC, Nigel Waterson, says the figures are “the latest sign of growing reliance on housing wealth as a key pillar of later-life financial planning”.

He continues: “Housing wealth is often people’s greatest asset and it makes sense for equity release to be on every homeowner’s checklist to consider as part of their retirement and estate planning. At the same time, it is not suitable for every circumstance, which is why professional financial advice and independent legal advice are essential.”¹

An equity release expert at retirement advisers Age Partnership, Simon Chalk, says the 9.5% increase in property prices over 2015 has made people’s homes “potentially their greatest asset”.

He adds: “During the year, more over-55s benefitted from their increased housing wealth than before, as annual equity release lending reached a new high.

“The strong growth in the market is set to continue in 2016, as house prices see no sign of slowing down and people become more aware of the importance of their housing wealth.”¹

Traditionally, equity release plans are controversial, with the original products allowing homeowners to end up owing more than they released from their property.

Current plans protect against negative equity, but they are still not always the best option for homeowners, as they offer less cash than would be available if the property was sold on the open market, and have other financial implications.

The Head of Retirement at Saga, Alex Edmans, comments on the findings: “These latest figures suggest people like being able to unlock cash from their home as and when they need it. This can be a smart move financially, as people only have to pay interest on the funds they release, but they know they can unlock more cash at a later date if they need to.

“However, equity release is not right for everyone. We always recommend getting thorough advice before taking out a plan, as well as speaking to family and friends so they know what you are thinking of doing.”¹

¹ http://www.theguardian.com/money/2016/jan/25/equity-release-levels-record-high-2015-over-55s