Greater product flexibility is driving rapid growth in homeowner demand for equity release with 120% more lending in the last two years.
Greater flexibility and innovative product features of lifetime mortgages are driving greater demand from homeowners for equity release according to the Equity Release Council that is expecting £4 billion of lending in 2018.
Lending to equity release mortgage buyers increased 12% from £870m in quarter one to £971m in quarter two and this was 39% higher than this period in 2017 with lending of £701m.
Property wealth can meet a diverse range of needs such as social care, gifting to children and grandchildren or improving quality of life which requires lenders to innovate equity release products.
Equity release offers greater flexibility allowing older home movers to buy a dream home in retirement if there is a shortfall in equity by using a lifetime mortgage.
Products double in two years
The number of products available to homeowners has more than doubled from 58 two years ago to 139 by August 2018.
There are different types of plan structures to consider and lenders are offering more fixed early repayment charges (ERCs) rising from 49% a year ago to 51% in 2018, compared to the potentially higher charges based on gilt yield ERCs should yields fall in the future.
Of the total products available 80% offer the choice to make ad-hoc, penalty-free voluntary or partial loan repayments compared to 68% last year.
About 45% offer penalty free downsizing protection which allows homeowners to purchase a smaller property and repay the loan and providers also offer ways of repaying the mortgage early without incurring any early repayment charges.
To protect housing wealth, inheritance protection is offered by 46% of products allowing homeowners to ring-fence part their home guaranteeing a minimum amount to pass on to the next generation.
For older homeowners, if you have an interest only mortgage you may be forced to repay the loan at a certain age and rather than downsizing, it is possible to turn to equity release and agree a lifetime mortgage.
Interest rates falling for equity release
In July 2018 the average interest rate for equity release products was 5.22% which has reduced from 5.27% in July 2017 and 5.96% a year earlier.
More competition is driving the cost down with 42% of products with interest rates lower than 5% compared to only 35% two years ago.
Buy-to-let landlords can increase their income in retirement by using a lifetime mortgage for their property portfolio as there are no interest payments to make.
Advisers of homeowners are recommending products with lower interest of 4.62% reducing the overall cost based on average loan size for drawdown plans of £64,184 and lump sum plans of £96,207.
It is possible to replace an existing equity release plan with one offering lower interest rates to reduce the cost and increase the likelihood of leaving equity to beneficiaries.
Find out if you can replace your existing equity release plan and any early repayment charges with a lower interest rate using this link:
Free equity release calculator with instant results to repay your equity release plan.
House prices in the UK are an average of £228,384 whereas equity release buyers have greater wealth with prices of £353,383 for drawdown customers rising 16% from £304,340 since 2015.
For lump sum customers house prices have increased 28% from £242,476 in 2015 to £312,302 in 2018.
The larger numbers of homeowners taking equity release could mean there is a reduced supply of housing stock making it harder for first time buyers to purchase their first home.
What are your next steps?
Our London City Mortgage advisers can recommend the lifetime mortgage product if you are repaying a residential loan and you can talk to your family about the benefits of equity release.
Learn more about the latest provider offers and most competitive interest rates to release cash from your property at this link:
Free equity release quote with provider offers to release cash from your home.
At LCM our mortgage advisers can source lifetime mortgage products to meet your needs. Learn more by using the equity release calculator, property value tracker chart and mortgage costs calculator.
