By New data released from Key, a UK based equity release adviser, reveals that retired homeowners are unlocking an average of £76,967 from their property through a process called equity release. This figure is up £5,484 in the same period in 2017, representing an overall 7.67 per cent increase.
Key also reported a 16 per cent increase in the sale of equity release plans between August to October this year totalling 12,133, further indicating the popularity of this growing trend across the UK.
Why is equity release so popular?
Equity release enables homeowners to access capital otherwise tied up in their property. This can be utilised for a variety of reasons that include debt clearance and home improvements.
According to data from Key, paying off credit card debt accounts for 30 per cent of their customer’s motivations for releasing equity, while clearing mortgages represents 21 per cent.
Key’s Q3 2018 report reveals that up to 66 per cent of their customers use the capital released from equity release to make home and garden improvements, such as mobility modifications that enable them to independently live in their homes for longer.
Installation of stair lifts and accessible baths and showers have been recorded as some of the most popular alterations to the home space, while new decking, gravel or patio stones are common modifications made to the garden.
These changes are often implemented to facilitate safe and functional living environments as individuals reach their later years, offering an alternative to assisted living or care homes. Will Hale, CEO of Key, comments on the continuing popularity of equity release among older homeowners:
“While some may choose to get their garden landscaped or have a conservatory installed, we find that a significant proportion are ‘age-proofing’ their property – typically by undertaking work to make their home more practical for later life living. Equity release is enabling over-55s to stay in their homes for longer and we are delighted to be able to help increasing numbers of people consider how housing equity can improve their standard of living in retirement.”
Equity release to help younger generations
Key’s data also reveals that 27 per cent of their customers used their equity to give to family and friends. A strategy which, properly utilised, can help participants avoid steep inheritance taxes.
Also, with increased challenges for young adults looking to get onto the property ladder, gifting money is often a generous move from elderly relatives to help in financing deposits or other substantial costs associated with buying a home.
According to a Legal & General report, it’s estimated that parents, family and friends will have spent a total of £6.5 billion this year to help their loved ones onto the property ladder, representing an increase of 30 per cent since the same period in 2017.
Legal & General also reported that 48 per cent of first-time buyers under the age of 35 received financial help from their parents to get onto the property ladder, whilst a staggering 69 per cent of first-time buyers admitted that they couldn’t have afforded their home deposits without external support.
Although mortgage rates are at record lows, even with the recent base rate increase to 0.75 per cent, buying property is still out of reach for many young people due to the
Where is equity release the most popular?
Key’s data on overall sales suggests that equity release is popular across the UK. The highest value of equity released from retired homeowners was seen in London, totalling £141,671, with the lowest figure coming from £50,000 coming from Northern Ireland.
The biggest increase in total value of equity released in Q3 2018 was recorded in Scotland at £40.166 million, which nearly doubled from the total value reported in 2017. Scotland also saw the biggest increase in the number of plans sold, which soared by 50 per cent compared to last year.
The West Midlands, Yorkshire & Humberside and Northern Ireland all saw an increase in equity value and the number of plans sold in Q3 2018, whilst the North East saw the largest increase in plan sales.
What are the drawbacks of equity release?
Although one of the major reasons retired people in the UK are choosing to release equity from their property is to help their family and friends get onto the property ladder, this could be putting them at a disadvantage.
Legal & General’s report suggested that people in this demographic could be putting themselves in financial difficulty by releasing equity for this purpose. One in five parents and grandparents has accepted a reduction in their standard of living and some have even gone so far as to postpone retirement or started working again.
Data also indicates that the total amount of money borrowed from parents for the purpose property purchasing has totalled £5.7 billion this year, only slightly shy of the total sum Clydesdale Bank lent on mortgages in 2017.
Financial experts recommend that retired individuals or those still in work who qualify for equity release, should carefully consider how they will cope financially, should they decide to release equity from their homes.
There are currently a variety of equity release plans on the market such as lifetime mortgages and drawdown plans that offer homeowners the flexibility of freeing up capital tied up in property.
Although releasing equity from a property comes with certain considerations, when done responsibly and with professional advice, it can be a very useful method of accessing much-needed finance for elderly people looking to improve their lifestyle, prepare for retirement, pay off debt or help out loved ones.
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